If you rather decide to buy and not build you have to decide whether to buy an established house or newly built house from a developer. Each has different financial implications:

Buying

Advantages: Buying an Existing Home

  • From a security point of view, (and also from an insurance premium point of view), it is less likely that there are vacant stands which surround the property.

  • Established neighbourhoods generally have the necessary major arterial routes and amenities, including a central business district, public transport, schools, shopping centres, and so on.

  • It may be easier to obtain objective opinions in terms of current and future property values in an established area.

  • The average land area, total building area and the average size per room of older properties is generally larger than that of new residential stands available or newly built homes.

  • One can obtain expert advice on existing structures if there is uncertainty about the structural aspects. Defects and poor workmanship can be inspected for quality.

  • If the property is bought at a reasonable price, it could be cost effective to renovate giving it a fresh and modern feel.

Disadvantages: Buying an Existing Home

  • Transfer Duty is payable on the purchase of a property from a natural person. In the event of purchasing from a developer, the developer will be VAT registered, and the price of the property will include VAT. The VAT is payable to SARS by the developer at 14% of the purchase price, but Transfer Duty payable on the purchase of an existing home is payable to SARS by the purchaser. On properties costing up to R 500 000.00 there is not Transfer duty, but the more expensive the property, the more Transfer Duty is payable.

    • Deteriorating properties in the vicinity may have a negative effect on the property value.

    • Older properties are sold ‘voetstoets’ without a warranty.

    • The design, layout and finishes may not be in line with your personal taste or the latest fashion trends, and renovating may be too costly.

    • Defects may be invisible at the time of viewing, and could end up costing you a lot of time and money in repairs.

    Building

    Building a new home

    Your choice of a vacant stand to build on will be a critical factor in the bank’s decision for finance. Be sure to have written in the Offer to Purchase the Seller’s responsibility for establishing access to the stand.

    If you’re not buying your stand from a developer, the financial arrangements, legalities and procedures are basically the same as buying a house. Once your Home Loan has been approved, a letter of grant is issued informing you of the bank requirements and any conditions pertaining to the building loan.

    In some cases, the conditions must be adhered to as a prerequisite to the home loan being registered.

    There are some specific factors you need to take into account:

    The stand must be within the proclaimed suburb, if not it can take years to be proclaimed, check with local authority. Proclamation means that the local authority confers suburb as suburb status and will provide water, electricity, and sewerage, refuse collection and other essential services. Check for restrictions at the local authority.

    The local authority must approve plans before an assessor assesses the building progress, in order to release the first progress payment.

    IMPORTANT: The bank requires a copy of the local authority, approved building plan, quotes from your builder and also proof that you have purchased the stand.
    An assessor will assess the stand on which the building will be built to assess its stability, as security for the loan to be advanced.

    The assessor will then estimate, on behalf of the bank, the cost to complete the house, which will determine the maximum home loan that will be granted. The assessor will also ensure that the builder is registered with the NHBRC.

    Advantages: Building a New Home

    • You do not have to put up with the previous owner’s taste and have the choice of deciding what finishes you desire and make your dream home a reality.

    • When buying from a developer, VAT is normally included in the price.

    • You have a 5-year major structural defect warranty as well as a 1-year roof leak warranty from a building contractor registered with the National Home Builders Registration Council (NHBRC).

    • Properties in your immediate area are usually also new and still well maintained, modern, and so on, and this will have a positive effect on the increasing value of your new home.

    • You are generally able to choose the design, layout, finishes and everything else to your needs and preference and in line with the current fashion trends.

    • The initial maintenance cost is low.

      • Disadvantages: Building a New Home

    • Settling cost is high such as to establishing a new garden, paving, and security. The new home with the smart kitchen is more expensive than a less expensive home with the not so smart kitchen.

    • Most newly built houses are on the outskirts of the city far from work and shops.

    • New developments and vacant stands are mainly on the outskirts of major urban areas, which may be a disadvantage in terms of security and accessibility to necessary major arterial routes and amenities.

    • The future development of major arterial routes may add to noise and other pollution and the development of low-cost housing or the formation of informal settlements on vacant land in the near vicinity may cause property values to stagnate or even decline.

    • You cannot be sure about your privacy if your neigbours have not yet build their homes around you.

    • Major additional expenses for an architect or engineer, land preparation or excavation with unforeseen ground formations, and so on, may need to be taken into account.

    • There is usually uncertainty about the quality of workmanship and material to be used.

    • The building project may take longer to complete than anticipated, which will create problems for you in terms of an occupation date.

    • Stand sizes are generally smaller than those in established older areas.

    • Relatively small stand sizes.

    • You need to keep your eyes on the project to ensure that what you had in mind from the start, is what the project turns out to be – this can become time consuming and put pressure on other daily responsibilities you may have.