Buy or build?


Established homes are winning the battle – for now.

It’s a buyers’ market, we know, but what do you do – purchase a section and build on it or go for an established house?

At present, “buy” seems to be winning out over “build”, but there are signs that could be changing.

Let’s ask the bank managers first.

Here’s Gareth Mercer, National Bank’s Queenstown branch manager: “The requirement for a higher deposit and the attraction of trying to snare a bargain has seen a trend reversal from previous years with most people now wanting to buy rather than build.

“We’ve seen a definite drop-off in the number of ‘spec’ deals coming across our desks too.

“There seems to be more certainty with buying rather than building, in that you know exactly what you are going to get and what it will cost, and in these volatile times customers are much more cautious.”

Local SBS Bank boss Allan Motion agrees: “Probably right at the very moment the thing would be to buy an existing house because build costs are still reasonably up there.

“And you’re paying the market value for [a house] today, and there’s no forecasting of value.”

Motion notes banks are asking more for fixed-price contracts for house builds so there are no overruns – that’s where home-building companies are coming into their own, he adds.

Local Real Estate Institute branch president Adrian Snow is in no doubt buy is winning out over build.

He points to the drop in bare land sales from about 20 a month through 2007 to about five – “and often some of those are distressed or mortgagee sales”.

“We’re seeing all of the building trades with more availability to take on work – one would assume the labour components have eased as well.

“But it’s been offset by the increased costs on materials, transport charges, compliance costs.

“I’m certainly advising my potential purchasers they need to be budgeting on numbers from $2000 a square metre [to build].”

In a climate where property prices have decreased about 15 per cent since 2007 yet building costs have risen, “buying existing houses is very clearly cheaper or offering better value”.

“You can be assured once the market does enter another growth phase, bare land values will probably increase at a faster rate than houses do because once again people’s mindsets are they want to build their own property, and they can possibly do it cheaper.”

Local Roost mortgage broker Mark Pullar says more clients are already considering building.

“They’ve noticed section prices have come right back and there are quite a few sections on the market, so they are starting to do the numbers on [building].

“The only thing with building is people tend to have to have a little more cash behind them.

“I can still get people into an owner-occupied house for just a five per cent deposit but you can’t do that with a build.

“From the banks’ perspective, they prefer to lend against something that’s in place.

“But from the client’s perspective, if they can get the land at the right place and they can do the numbers, they may see there’s value in building.

“I guess, with the way the market is, perhaps with a few more builders having a bit more time on their hands, [clients] have got a little bit more choice.”