Buying vs building delivers better ROI for property seekers

Buying existing property and renovating it to one’s own liking still offers a far better return on investment (ROI) than building from scratch as demand for contractor skills and materials shortages continue to expert pressure on the building and construction sector.

This is according to Kura Chihota, Executive Director of Leapfrog Property Group, South Africa’s only black-owned, national real estate franchise.

“A recent report in FNB’s Commercial Property Finance Residential Building Cost Index puts the average house construction cost at R 4 800m², however feedback from the sales field indicates that this figure is exceptionally conservative and that the reality paints a picture far closer to R6 000m² for basic finishes and anywhere from R10 000m² upwards for more luxurious homes,” says Chihota.

“Construction projects in the Western Cape as an example start at R5 000 m² for very simple work and finishes and can run up to R15 000m² for quality finishes, excavation if you’re building against the mountain side and so on. Added to this, you have the inconvenience and frustrations that go with building from scratch and unless you have the time to project manage it yourself, buying an existing property in a good location and renovating still offers far better value for money and peace of mind,” says Chihota.

“Overall, demand for existing houses has flattened on average due to interest rate levels and the NCA. The result is a buoyant rental market and sales in the segment up to R1million and above R5 million have remained strong. The real crunch is coming in at the R1,5 - R3 million segment where stress sales are also attracting bargain hunters.”

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