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Is it better to build or buy a house in Australia?

When homebuyers come to the real estate market, many are conflicted about whether to buy an established home, or build their dream home from scratch. There are a series of pros and cons with both options, and making a decision will ultimately come down to your personal preferences, budget and needs.

An established home is one that has been lived in, and it may have had a number of owners over the years. When you purchase a brand new home, or construct your own, you will be the first people living in it.

In this article we’ll compare buying an existing home with buying a new build to help you come to a decision for your next property purchase.

Buying a house and land package vs buying off the plan

Buying off the plan and buying a house and land package are similar processes. Both are used for those wanting to own a new build property. However, the key difference is in ownership.

If you opt for a house and land package, you purchase and own the land from the beginning and gradually construct a house. On the other hand, when you purchase off the plan you don’t own anything until the building process is complete and settlement happens.

We’ll explain more about each approach here:

What does buying ‘off the plan’ mean?

Buying off the plan involves purchasing a property before it has even been built, based on an advertisement that includes detailed construction and design plans. There may be a display home to view, but there are also artist impressions of what the property will look like once it has been completed.

When you buy off the plan, you may need to wait several months before you can actually move in. However, in this time property values could rise and you may have saved money by purchasing the property earlier.

There are possible risks that can arise from buying off the plan:

  1. Complicated contracts: it’s smart to have a legal expert go over the contract to make sure there aren’t any red flags.
  2. Disappointing results: while uncommon, the home that you end up with might not be quite what you expected. For example, if you purchased an apartment off the plan, you may have been told to expect a particular outlook or floor of the building. However, contracts often allow developers to make certain changes, so you could end up in a slightly different apartment to what you were expecting.
  3. Limited design flexibility: while it varies between developers and contracts, you may not be able to make too many bespoke design choices when it comes to the construction.

Buying off the plan involves signing a single contract for a combined house and block of land. You pay a deposit of around 10% and settle on the total value after construction (generally with a home loan).

What is a house and land package?

A house and land package combines both a home and land loan into one package, often as a way to be more affordable. So, essentially you purchase a block of land and organise the construction of a home in a single process, but there are two contracts involved. The land will be sold from one entity, and the home is purchased from a builder.

Under a house and land package, you’ll know the total price of the land and home from the beginning, reducing fears of unexpected costs down the road. The mortgage is initially just calculated based on the land, and then your second loan (the construction loan) is to be taken out. You make payments to the builder you hire in the typical six stages as the building progresses.

There are some risks you should consider before purchasing a house and land package:

  1. Know the inclusions and exclusions: it’s important to know what is included in the deal, and what is going to cost you extra. For example, landscaping and fencing usually isn’t included in the standard package price, whereas a complete kitchen and electrical points will be included.
  2. Long process: the construction of a home can take a long time. Sometimes, delays will happen and this could place you in a difficult situation, particularly if you are renting or living somewhere temporarily.
  3. Negotiating: you’ll get the opportunity to talk over designs with the builder and this can be an exhausting, expensive and confusing process. Make sure you’ve figured out what you want (and ensure the builder can do it) before you sign the contract.

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Pros and cons of buying a new build property

ProsCons
Modern features and appliancesNewly built homes tend to be located on the outskirts of cities and towns. This can result in a lack of established community, low leaf coverage, poor public transport, long commutes and more
Greater opportunity for customisation, especially if you are designing the new property, rather than just buying off the planIf you want to build in an established area, you may have to do a knock down rebuild which is more expensive than purchasing an empty block of land
New apartments can be found all over cities, giving you decent choice with your locationBuilding a new home can take a long time and be a very stressful experience
Newer homes tend to be more energy efficient, potentially saving you on energy billsLike with any construction project, building a home can end up costing much more than anticipated. Delays happen if your cash flow gets interrupted
Various home buyer schemes such as the HomeBuilder grant and First Home Owner Grant incentivise building or purchasing a new build homeVisualising a house that hasn’t been built yet can be challenging
When building your own home, the cost of the land and home build may be less than if you were to buy an established property-

Pros and cons of buying an established property

ProsCons
The process is usually faster and easier and you know what you’re gettingLess opportunity for customisation, but you could renovate if you have the funds
If you want to live in a fairly central location, purchasing an existing home will be your main optionPotential for an outdated house
Established houses are usually in established areas, so you can get a greater feel for the community and are before you move inMany established houses require updates and modernisation which can be expensive
Some buyers may have greater trust in the structural integrity and quality of established homesHidden issues can arise, particularly when it comes time to do renovations. Make sure you organise a thorough property and pest inspection before purchasing any property
Opportunity to purchase a heritage home with character-

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Do new builds keep their value?

It’s hard to provide a definite answer, as this is ultimately dependent on the market and what buyers are looking for. However, newer houses are generally more likely to be subject to market fluctuations and building equity in these properties can be more difficult.

This is because established homes have more opportunities for improvement. For example, House A was built one year ago and House B is 60 years old. Both have the same number of bedrooms, bathrooms and are currently valued at the same price.

Other than some painting and basic cosmetic refurbishments, House B hasn’t seen any renovations in 15 years. This means that there is a lot of potential for renovations that could increase the property’s value and therefore equity. Naturally, when considering renovations, you need to ensure that the cost of renovations will be more than reimbursed through a value increase.

On the other hand, the newly built House A won’t have as many opportunities for improvement for quite some time.

Something else to keep in mind is that a newly built trendier home will look dated faster than an older home that is designed with classic taste. But, if you’re building a home that you intend to live in for years and years to come, then depreciating value isn’t something to worry too much about.

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Are newly built houses better than old homes?

Again, this is entirely subjective and dependent on what you are looking for in a property. If you’re looking to custom design every inch of your home, then it makes sense to build a new home. However, if you’re an investor, purchasing an established home could save you time and potentially money.

Take the time to think about what you want out of your home, and weigh up the pros and cons of each option.

Is it cheaper to build a house or buy an existing house?

This depends on a lot of factors. Most available land to build on tends to be in the outskirts of cities and towns, although it does depend on where you live. Land in these areas can be affordable and possibly cheaper than buying an existing house in other areas. But if you want to build a home in a convenient location in a capital city like Sydney, prepare to spend a lot on the land. Empty lots might not even be available in your desired location, so you may have to consider buying a home with the intention of doing a knock down rebuild.

When you build, you have to pay for every single aspect of the project, including:

  • Land
  • Stamp duty
  • Home/construction loan settlement fees
  • Lot preparation and planning fees
  • Council approval fees
  • The cost of the build
  • Finishing fees

However, you also have some control over how much you spend on aspects of the construction. For example, you can opt for the cheaper floors, skip the swimming pool, and go for simple landscaping.

On the other hand, most established homes are move-in ready and you more or less have to accept the cost at face value (with a little negotiation). Unless you’re planning on making improvements, you don’t have to decide between the cheaper faux-wood or the more luxurious hardwood floors. But some established homes can require serious renovations and updates, either based on need or your personal expectations. This can be costly!

It’s a good idea to get out there and see what established homes are available for your budget, and compare this with what kind of home you could afford to build.

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What should I know if I’m doing a knock down rebuild?

If you plan on doing a knock down rebuild, make sure you are aware of the following:

  • Any restrictions on heritage listed homes or tree preservation orders
  • Council rules and regulations that could limit your plans
  • Potential for disruptions to neighbours
  • Any health risks in the existing home e.g. asbestos
  • The land and drainage - you want a solid foundation to build on

Get in touch with the planning and building department of your local council before you buy a home that you want to knock down. They’ll be able to help determine whether your plans are compatible with local building policies.

How to decide between a new build or established home

Consider the following questions:

  • How long do I want to live in this house? If you anticipate only living in the home for a short time, do you want to spend months designing, customising and building a home?
  • When do I need to move into this home?
  • Where do I want to live? Do I value an established community or the opportunity to custom design a home from scratch in a new area?
  • What can I afford? Is it financially smarter to purchase a home off the plan in the outskirts of the city?
  • I’m investing, so what do rental trends look like in my desired location? Are vacancy rates high in newly built apartment blocks?

Deciding what kind of property to buy or build is a big decision, so we want to help the home loan process be as easy as possible. Get in touch with a Home Loan Specialist to find out more about your home loan options today.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: first home, first home buyer, deposit, home loan, new purchase, building new home or structure, building inspection, construction loan, renovate, renovation, new home

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