“According to our statistics and calculations, we’ve seen the price of new property increasing quite sharply in recent times compared to an existing property. I think the main difference is all the costs that are involved to build new properties, especially from a developer side,” Absa home loans property analyst Jacques du Toit told CNBC Africa on Monday.
“[The developer] also has some challenges in terms of cost to the consumer. When it comes to an existing property, price of property is always negotiable between the buyer and the seller. All those costs, in terms of labour, re-zoning, and building material, those are not then really discussed at that specific point in time.”
According to du Toit, existing homes are currently 29.5 per cent cheaper than new homes, and provide a number of reassurances that houses in progress cannot.
“There’s quite a difference between a new and existing property. When you have an existing property, you can see what you buy. When it comes to a new property, you won’t know what you will end up with in the end. There are different angles that you should actually view when it comes to buying or building a new property,” he explained.
Du Toit added that new homes have less requirements than those tha are being built.
“If you are a developer, you have to obviously acquire a piece of land and it must be suitable land with services. It is no use acquiring land for residential purposes and you don’t have services on that land,” he said.
“Then you have to go through the re-zoning process. In many instances that will take some time, and there are also a lot of costs involved in that.”
There are also holding costs involved once land has been acquired, and the entire process can take up to two to three years to be approved.
He added that building a home can cost up to 1.5 million rand. The average price of an existing home with the same specifications of a new home can cost roughly 1.1 million rand.
“According to our statistics, the most property transactions took place in terms of existing properties. When it comes to a new property, it is quite nice to have something like that built because then you can decide what finishes you have, you can decide the position,” said du Toit.
“When it comes to existing property, you have to accept what you get. When it comes to buying an existing property, it’s also prudent to go through an inspection process before you sign on the dotted line.”