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Buying a home is a big financial investment, whether an investment or main residence. There are many factors to consider. Invariably everyone wants capital growth. Another factor to take into account is whether to buy an established home or to build a new home. Which one will be cheaper to buy? Which one will grow more in value? It often comes down to personal choice. Some people dislike building and will always look for an established home.
There is greater certainty when purchasing and established dwelling. The settlement date is fixed meaning purchasers are able to plan towards an agreed date instead of waiting for construction to be completed. When building a new home hiccups and surprises are possible. This includes foundations issues such as site rocks and poor soil quality. This leads to increased building costs. Other issues that can arise in a new home build include building defects due to poor workmanship and lost time arranging for the rectification of defects. As for established dwellings, prospective buyers can arrange a professional building inspector and building report on the property before decision to purchase is made. Delays are also common when building. Delays are caused due to inclement weather, material being out of stock and other delays caused by the builder. Delays cause frustration especially if you are paying rent in another property whilst awaiting completion.
Benefits for First Home Buyer
Buying and established home means a first home buyer can enter the market straight away as opposed to waiting until titles are issued for the land (can be 18 months and in rare cases longer) and then for construction to complete (6-18 months). The first home buyer is able to ride the property cycle immediately from purchase and hopefully see capital growth in their property. The new home build could take years to finally complete before the buyer officially owns a home. The buyer must consider the different asset classes carefully in order to maximise capital growth. Things to consider among other things are the right area, property type and nearby amenities.
The new home market is booming and there are many house and land packages available. With plenty of choice when it comes to builders buyers can negotiate extra inclusions and better finishes. A buyer must consider their own preference and whether they require a great deal of customisation. Alterations and extensions to existing homes can be quite costly and often it might be easier to build your own dream bespoke home from the outset. Building your own home not only allows customisation – there are stamp duty savings and the benefit of the First Home Owners Grant.
Benefits of a New Build
When building a new home every aspect can be tailored to the owners liking. The floor plan is designed to owners specifications and all the fixtures/fittings built to spec. This means no changes or renovations ever need to happen. Move in and enjoy. Stamp duty savings mean you will pay less tax than when buying an existing home. Stamp duty is only paid on the land. Eligible first time home buyers are entitled to a 50% reduction in stamp duty as well as the first home owners grant of $10,000. Often land will take time to be released and made ready for building. During this time, more money can be saved to reduce borrowings. It allows the buyer to lock in the land (and the price) now and to accumulate further savings before settlement actually occurs.
For existing property owners deciding whether building a home from scratch (factoring in land and building costs) is cheaper than buying an already established home. They must consider build costs, the builder’s, quality of workmanship, finishes and specifications. In theory an established dwelling is cheaper due than building a new property due to depreciation and cheaper building costs at the time of initial construction. Cost of labour as well as building materials are increasing.
Before making a decision on whether building a new home or buying an established house is better for a buyer’s situation asking the following questions is a must.
- How much money have you saved?
- Where do you want to live?
- Is it an investment or your primary place of residence and if your primary residence are you willing to wait?
- How important is it to be able to plan out your home from the very beginning?
- Is profit or capital growth your main concern?
The answers to these questions will help the buyer reach the best decision based on their circumstances. Which is better as a long term investment? Well that will depend on the individual’s circumstance. The market cannot be predicted but building design, layout, suburb, local amenity, public transport, schools and shops are some indicators that will help in determining which is the better long term investment. Prices will arguably appreciate irrespective of whether a new or established home is purchased and both are sound finance investments in the long term.