Change is as good as a holiday, goes the adage, especially at a time when many of us are spending more time working from home. For some, this may mean it’s time to build a new home, with all the specifications to meet your changing needs. Or, if you are buying an existing home, it could mean a few renovations here and there to make it your own. Currently about 8% of BetterBond’s applications are for building loans that can be used to build a new home from scratch, or to renovate an existing property.
“Deciding whether to start from afresh, or make improvements, depends largely on your budget and how much time – and patience – you have,” says Carl Coetzee, CEO of BetterBond. “Building typically costs more than renovating because it usually involves more complex work, as well as additional time, labour and materials.”
Consider the following when making your decision:
- Goals: Would a few renovations be sufficient to turn your new property into your dream home, or do you need to build from scratch to meet your goals for the future?
- Investment: Apart from the physical structure of your home, also consider the area it is located in. Building usually costs more than renovating, but having a brand-new home in a sought-after area could be a valuable commodity in the long term. Renovations to a new property could also significantly add to its value, ensuring a substantial return on an investment.
- Availability: Sometimes, building from scratch may not be possible as there is often a shortage of vacant land available on which to build in dense residential areas. It may be best to buy the home that you can currently afford, with a long-term plan to refurbish it as desired.
Choose the best bond
A Building Loan is taken out to build a new home on a vacant stand, or to do structural renovations to an existing property. The property can be either bonded or unbonded. “These loans are different from conventional bond applications as they require additional documents,” says Coetzee. The payment method is also not the same as a conventional home loan. Instead, a series of payments is made as construction progresses.
If you want to make changes to an existing property that is already bonded, you can take out a further advance on the existing bond to build. If the property is unbonded, meaning that there is no loan amount owed on the property, you can take out a new loan to build. You will need the title deed of the property when applying for a building loan.
Benefits of renovating a new home
If you can live with the temporary disruption, renovating can be rewarding as you’re working with what you have and creating something new, says Coetzee. “This is especially true if you are buying your first home. While you may not be able to afford your dream home straight away, a renovation could transform your existing property into an ideal space.”
- Renovations are usually less time-consuming than building or construction work.
- If your home just needs a refresh, then renovating would be less costly and quicker than building.
- You might not have full use of your property while renovation work is ongoing, but you probably won’t have to move out.
- Work takes place within the existing structure and it doesn’t have to be knocked down.
- You can refurbish your existing home to suit your needs and modernise or upgrade it as you like. For example, you can add a work-from-home space if you are still not back at the office.
- You can install new, more energy-efficient fixtures, fittings and finishes that could deliver significant cost and environmental savings over time.
- It will allow you to create more space and enjoy greater comfort and convenience than you currently have.
- You will be adding value to your property, increasing your investment and improving your resale value.
“Just remember to update your building plans if you make any changes to your property,” adds Coetzee. Also, any building or structural changes must receive planning approval from the relevant city council before renovations are started. It will be difficult to later sell a home that does not have updated plans for any renovations that have been done.
Benefits of building from scratch
People who decide to build usually weigh up their finances, look at the logistics, and decide to bank on the long-term benefits, says Coetzee. “They basically choose to endure short-term pain for long-term gain.”
- Building gives you control over a project – you build your dream home exactly the way you want it, tailored to your unique needs.
- You can build something that is more environmentally friendly and sustainable than your current home.
- You can future-proof your home by installing smart technology and high-tech home security.
- You can create a space that can accommodate lifestyle changes over time, for example adding a dedicated space for a home office or a teen pad.
- You have complete freedom when it comes to choosing fixtures, fittings and finishes.
- Everything will be new so expect to spend less time and money on maintenance.
- A new property is generally more sought-after when it comes to resale and would probably fetch a higher price than an older place.
Important considerations when building
- You will need to service the interim interest of building as well as funding the property you already own or rent.
- If the interim interest is not serviced, this could create a shortfall at the end of the project which you will need to fund before you can take occupancy.
- If a deposit is required, the bank will request that you have funding for this upfront before any monies are advanced by the bank against the project. This is generally known as a shortfall.
- If you buy a new property and have intentions to renovate at a later stage, it is advisable to register a higher bond so that you do not need to go through this process and cost at a later stage. It is cheaper to do it at the outset. Also, if you have a higher bond that can cover the renovation costs you will not have to go through the registration process when you are ready to renovate and you have to submit your plans.
- Choose a reputable builder registered with the NHBRC as the banks will require this documentation.