House hunters often ask their realtors whether it is best to buy a new home directly from a developer or an existing home. The answer isn’t simple, though, because there are advantages and disadvantages to both, and ultimately it depends on your personal requirements.
Herculene Visser, Lew Geffen Sotheby’s International Realty area specialist in Tokai, says: “The only way to make the correct decision is to make an informed decision, so it is crucial to do thorough research beforehand”.
“Explore the suburb in which you are looking to buy, taking note of the infrastructure and amenities as well as the price structures the area commands and if you are buying an investment property, you need to know the market-related rental price bands in the area and what types of properties will offer the highest rental returns”.
“Once you have this information, it will be easier to decide between buying an existing or a new home and to evaluate the pros and cons.”
The most common advantages of buying an existing home are that the surrounding suburb is usually established so there is little risk of living with the disruption of ongoing construction and these areas offer the convenience of a developed infrastructures and an array amenities like shopping centres, schools, sports facilities and places of worship.
“Gardens are most likely well established and well cared for so you won’t have spend time and money establishing one from scratch,” adds Visser.
Disadvantages could include that you may have to do renovations to upgrade the property to your standards and to meet your needs, and older homes often require more maintenance that can prove costly over time.
“However, if you inspect the property thoroughly before buying, or even get it surveyed, you will eliminate the risk of being caught by defects that only become evident at a later stage, resulting in additional expenditure.”
The main advantage of buying a brand new home is that everything will be fresh and new with none of the wear-and-tear of a property that’s previously been lived in and you can usually choose your own finishes and perhaps even give input on the design and layout to customise it to your liking.
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, points out that another advantage of buying new from a developer is that these homes come with a National Home Builders Registration Council (NHBRC) five-year guarantee, with the roof guaranteed for one year.
“Buyers also have a stipulated period after moving into the property during which time any snags will be made good by the developer. And if you buy from a developer the Consumer Protection Act (CPA) will protect you, whereas if you buy from a private seller the CPA doesn’t apply,” says Geffen.
- Within three months, instruct the builder to rectify non-compliance or deviation from the terms, plans and specifications of your mutually binding agreement;
- Within 12 months, instruct the builder to repair roof leaks attributable to workmanship, design or materials; and/or
- Within five years, instruct the builder to rectify major structural defects caused by non-compliance with technical building standards.
Steve Thomas, Lew Geffen Sotheby’s International Franchise Manager in False Bay and Noordhoek, adds that when you buy directly from a developer, you’re getting a brand new product, where no major maintenance, refurbishments, or repairs will be necessary for the next three to five years.
“Another benefit to buying new property is that you can choose the layout you prefer, the size of the unit, and usually there is a list of finishes from which to choose”.
“The possible disadvantages include working through snag lists when you move in, the waiting period might not suit you, and the choice of designs is usually limited.”
Thomas says the type of buyers who generally prefer new homes are first time buyers, retired people, and holiday home buyers, whereas creative people, middle aged buyers and renovators tend to favour existing homes.
Visser cautions that although buying off-plan does have many significant advantages, buyers should be aware of the following risks:
- You may not be able to visualise the end product from architectural drawings and plans or artist’s impressions, so the final product may not be quite what you envisaged. It’s essential to double check specifications and finishes to make sure the end product will be exactly what you wanted;
- You need to be aware that although you don’t pay transfer duty, you do pay VAT;
- Building from scratch can be expensive, stressful and time consuming, especially if there are delays;
- If you buy into a development you may have to compromise on the date of occupation and transfer depending on the nature and circumstances of the particular development;
- And you will have far less control than if you were building your own home so always investigate the track record of the developer for quality of workmanship, financial stability, integrity and reliability. Find out about developments the developer has previously completed.
Geffen also points out that although existing homes costing less than R900 000 have no transfer duty, there is still 14% VAT payable on newly-built homes in this price bracket.
“So, if you are buying a new home will effectively be getting 14% less floor space for your money than if you buy a pre-owned home. Transaction costs such as legal fees and bond registration fees are the same for both types of property, and are not always covered by the developer”.
“Also, building costs are increasing at more than twice the rate of inflation, so newly-built homes now tend to be about 30% more expensive than existing homes of the same size. This means newly-built homes are around 30% smaller at the same price,” says Geffen.
“Another problem with buying early in a new development is that there might only be a few homes built in the early stages of the development as some developers give buyers up to two years to build their homes after buying”.
“If you are one of the first to build, you might find that not all the infrastructure has been installed or that security is lacking. Instead of the 50 or so houses that will eventually be in the neighbourhood, there may only be a few for a long time”.
“While the other buyers are building you will have to put up with contractors in and out of the estate, and inconveniences such as temporary water or power outages”.
Geffen concludes: “Regardless of which option you choose, the better informed you are the easier it is to avoid the pitfall and minimise the risks so you always need to do your homework before signing an offer to purchase”.