Real Estate

Is there a right time to build a new home?

By November 7, 2016 No Comments

There are many factors to consider when embarking on a new build. However, when it comes to deciding on the timing, there are a few core components that you must evaluate. Our trusted partners at iBuildNew share their expert new home building industry insights on the best time to build a new home.

According to the latest Nielsen research data, each year 1 million people consider building a new house. Approximately 10% of these people will actually realise their dream and build a new home. These are staggering numbers. One of the most common questions raised by this group is when is the right time to build a new home? With so many levers at play, it makes it a hard questions to answer.

There are a number of internal and external factors that you need to consider when thinking about when to build. How are land values behaving? What is the forecast on interest rates? How busy is the building market? What is the comparison between new building prices and existing realty prices? And, how much longer can you and your family live in your current situation?

Land value

The current value of land is very important for anyone who doesn’t already own a plot or block. Currently, the values vary wildly from each state, driven by standard supply and demand. In Sydney, the average value has jumped roughly 45% in the last 3 years. No doubt that the demand in Sydney has been strong, however, new land releases trickled through because of the postponement of government approvals and infrastructure projects holding up contractors. Thankfully a number of recent new land releases have helped to stabilise the market for the short-term future.

Finance & interest rates

Generally speaking, the vast majority of first home buyers will have to take out a loan from a financial institution to build a new home. Because of this, you will need to pay attention to the current and forecasted interest rates, as well as the various options you have when it comes to the types of loans available.

In Australia, the benchmark cash rate is 1.5%, interest rates are the lowest ever and a common comparison rate sits at around 4.5%. The bottom line is that with the current external factors, right now is the best time to borrow and build a new home. In many cases, some institutions are offering 5 year fixed interest rates at 5%.

The demand on contractors & builders

The land and construction will be the largest cost on a new build project. One aspect that many people new to the property game don’t realise is that the difference between what you pay your builder and what you receive can vary significantly depending on how busy the current market is. Prices rise and builders become less flexible when there is a strong demand for resources. Customisation of design becomes harder to negotiate as tradies and contractors look to streamline their own production line in order to maximise the volume of jobs they can complete.

If bespoke variations are important to you on your first build then it is wise to look for slower spells in the building market so that you can negotiate these changes to standard plans, potentially realise lower fees and capitalise on other special promotions that building companies run in down times. With a quieter market in Perth and Adelaide at present (and you might even see Brisbane in a similar category), now is as good as any time to build from this perspective.

The general realty market

Of course, it is always best practice to investigate and weigh up all alternative options and costs. All have their pros and cons, including buying an existing property. In Australia, for first home buyers, it is pretty standard to assume that you will get more bang for your buck when building a new home vs buying an established house. There are many subjective nodes attached to this, but more tangible is that existing property values grow at a much steeper pace than the cost of a new-build and land.

So, with land price growth slower than property, interest rates at record low levels and a competitive finance marketplace, building a new home over the next 1-2 years is a very attractive option for first home buyers.

Source

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