Building a new home the cheaper option in Sydney, Melbourne: analysis

Homebuyers balking at the cost of a median priced house in Sydney and Melbourne could consider building a new home to save themselves thousands of dollars, an analysis of property costs shows.

Taking into account median prices, stamp duty, grants available and build costs analysis found the cost of building close to $360,000 cheaper in Sydney and about $200,000 cheaper in Melbourne, Finder.com.au money expert Bessie Hassan said.

“Construction costs appear to be higher in Brisbane and Perth,” Ms Hassan said.

But buying new in Sydney and Melbourne may also offer a long-term financial incentive. “Buying a property also means you will pay less in maintenance expenses which may outweigh the ‘premium’ price tag that you may pay initially,” she said.

There’s just one significant obstacle.

While on paper the strategy appears to be cheaper, Wakelin Property Advisory associate director Jarrod McCabe warned home buyers and investors from becoming “too excited by this strategy”.

“The main reason to be wary of this approach is availability. It is very hard to find vacant land in established suburbs and you will most likely find yourself travelling towards our cities’ fringes in order to find any,” he said.

“Once you come closer to the city, land values are generally too high to make the economics work unless you’re an experienced builder [or] developer.”

Established properties are often located in areas with amenity, which is why they are more desirable and thus attract a premium, while new houses are typically not, he said.

Sydneysiders in particular will need to look much further from the CBD for vacant land options, WBP Property Group executive chairman Greville Pabst said.

Blocks of land in Sydney’s Box Hill, 45 kilometres from the CBD, are priced from $390,000 for 300 square metres. 

“A buyer that is looking at a new development is likely to be pushed to the outer suburbs and they should ask themselves whether this aligns with their lifestyle,” Mr Pabst said.

And while comparatively it appears more affordable to buy a block of land and build, land also soared in value during the property boom.

Land blocks jumped $100,000 in the past 12 months in Sydney, the Urban Development Industry Australia’s (UDIA) 2016 State of the Land report found. In Melbourne, land prices increased by less than $10,000 over the same period.

“The biggest contributor to the lack of affordable housing in Australia is the tax on new housing and apartments, which necessitates a high selling price,” UDIA national president Michael Corcoran said.

“The most taxed product in Australia [other than cigarettes] is a new home or apartment, more than 40 per cent of the cost of a new dwelling is tax,” he said.

Pros and cons of building versus buying

Buying pros

 – Renovation potential: You can customise the layout and aesthetics of the property to suit your lifestyle and personal tastes.

– Capital growth: The ability to build and upgrade an existing property can help you achieve capital growth through price appreciation over time.

– Negotiating power: Assuming that you purchase an existing property to renovate, this can give you better negotiating power when determining the sales price or settlement terms.

Buying cons

– Time and emotional investment: You shouldn’t underestimate the time and emotional investment required to finish a renovation project. Additionally, people often don’t account for the disruption factor.

Building pros

– Low maintenance: If you purchase a new property, you won’t need to fork out for ongoing repairs and maintenance costs.

– Government incentives: There are stamp duty concessions and grants available for first home owner grants when buying off the plan which could significantly reduce your upfront and ongoing costs.

Building cons

– Limited value-adding potential: There is little opportunity to add value to the property once you’ve purchased it so it may take longer to achieve capital growth.

– Greater market risk: New properties are generally the first to see price declines when the market softens, while established properties will either maintain their price value or experience a minimal adjustment.

Source: Bessie Hassan, Finder.com.au