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Is it cheaper to build or buy?

We answer the age-old question with data

Updated

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The question of whether to build or buy is a tough one, and ultimately comes down to some very individual preferences. However, taken in purely monetary terms, the choice to build or buy comes down to a few key factors.

Let’s look at the cost of building a house, taking into account the median price you’ll pay for a vacant block of land across some of Australia’s capitals. The estimated construction costs are for a three-bedroom brick veneer home on a level block of land with a medium finish quality.

Median lot priceMaximum estimated construction costsTotal
Sydney$450,000$180,810$630,810
Melbourne$330,000$195,275$525,275
Brisbane$232,500$207,932$440,432
Adelaide$220,000$198,891$418,891
Perth $269,000$216,972$485,972
Hobart$165,000$175,386$340,386

Source: CoreLogic, BMT Quantity Surveyors

This doesn’t take into account finishing costs, which could add an additional 15-25% to the total cost. It also doesn’t take into account stamp duty. If you’re a first home buyer, you could be eligible for a concession on your stamp duty depending on the state or territory you live in. The table below shows the stamp duty payable on a median priced block of land in each capital city.

Stamp duty on vacant land (assuming median price)Concession for first home buyers?
Sydney$15,740Yes, for land valued between $350,000 and $450,000.
Melbourne$14,870Yes, duty is only paid on the improved value of the land, the non-deductible costs and the completed construction or refurbishment including GST as at the contract date.
Brisbane$7,084.80Yes, for vacant land under $400,000.
Adelaide$7,680Only for those buying a new apartment within certain locations in the City of Adelaide.
Perth$7,657Yes, for land worth between $300,001 and $400,000.
Hobart$4,710No

Read our stamp duty guide

So even after factoring in construction and the price of a vacant lot, you could still be on the hook for stamp duty and finishing costs. It’s also important to keep in mind, however, that this could be offset by First Home Owner Grants (FHOGs) available for the construction of new homes. The table below gives a rundown of the grants you could be eligible for depending on your state or territory.

CityFirst Home Buyer Grant for building?
SydneyYes, the $10,000 First Home Owner Grant is available for construction of new homes valued up to $750,000.
MelbourneYes, the $10,000 First Home Owner Grant is available for building a new home valued at up to $750,000.
BrisbaneYes, borrowers building a home valued at up to $750,000 are eligible for the $15,000 Great Start Grant.
AdelaideYes, a First Home Owner Grant of up to $15,000 is available for the construction of new homes valued up to $575,000.
PerthYes, the $10,000 First Home Owner Grant is available for the construction of new homes.
HobartYes, new home construction is eligible for the $10,000 First Home Owner Grant.

Read our FHOG guide

So let’s assume you decide to build your three-bedroom brick veneer house. In our worst-case scenario, you pay an additional 25% for finishing costs. If you're a first home buyer purchasing a median priced block of land, we'll also take stamp duty concessions and the first home buyer grant into account. Here’s the total cost you’d be looking at.

CityTotal cost
Sydney$794,252.50
Melbourne$661,463.75
Brisbane$542,624.80
Adelaide$516,293.75
Perth$597,465
Hobart$420,192.50

Now let’s contrast this with the cost of buying an established house in each capital city. According to the latest median house price report from Domain, this is the price you’d be looking at to buy an established house:

CityMedian house price
Sydney$1,150,357
Melbourne$914,518
Brisbane$557,214
Adelaide$533,525
Perth$553,486
Hobart$450,349

Source: Domain Group

Now let’s factor in stamp duty.

CityMedian house price + stamp duty
Sydney$1,199,119
Melbourne$964,464
Brisbane$564,389
Adelaide$556,703
Perth$553,486
Hobart$466,488.50

It’s important to note that in many states the First Home Owner Grant does not apply for the purchase of an established home.

Now that we’ve crunched the numbers, let’s have a look at how the median costs of building stack up to the median costs of buying.

CityBuildingBuyingDifference
Sydney$794,252.50$1,199,119
  • Building is $404,866.50 cheaper
Melbourne$661,463.75$964,464
  • Building is $303,000.25 cheaper
Brisbane$542,624.80$564,389
  • Building is $21,764.20 cheaper
Adelaide$516,293.75$556,703
  • Building is $40,409.25 cheaper
Perth$597,465$553,486
  • Building is $43,979 more expensive
Hobart$420,192.50$466,488.50
  • Building is $46,296 cheaper

Obviously this is a general estimate. Your finishing costs may be less expensive, you might be eligible for stamp duty discounts and there are a number of ways you can save on the cost of construction, particularly if you manage the building process yourself. Moreover, the price of established homes can vary significantly based on the suburb in which you choose to buy, so a capital city’s median price may not be indicative of the kind of home you’d be looking for. But as a general guide, the table above shows that building and buying stack up very differently in different capital cities.

But the building versus buying conundrum comes down to much more than cost. Ultimately, the decision has more to do with the kind of home and home buying experience you’re looking for. An established home can have the benefit of being situated closer to transport and amenities. It can have the character and charm that come with a long history. A newly-built home can allow you to suit the layout and design to your own needs and tastes. While the cost of building versus buying is easily quantifiable, the true value of the two choices comes down to you.

Deciding whether to build or buy?

Cost is one thing, but there are more issues to consider when deciding between building or buying a home. We've broken them down for you.

Building a home

  • Benefits. When you build a home you get the ability to customise it according to your preferences, and you can choose materials and fixtures to suit your requirements. Some lenders offer home construction loans which enable you to get funds in stages, as opposed to a lump sum amount. In addition, you do not have to worry about old plumbing, wiring and appliances breaking down for a while.
  • Downsides. Building a home can take considerably longer than moving into an already-constructed home. While a number of builders offer fixed price contracts with build-time guarantees, take into account that certain council approvals can take time depending on what you have in mind. It also pays to factor in unexpected delays thanks to inclement weather. Choosing a good contractor requires you to do some research, because a faulty or incorrectly built section can take more time and money to repair. If you plan to have a garden, it can take years before the trees mature completely.

Buying a home

  • Benefits. Buying a home is convenient, compared to building. All you need is loan pre-approval and look for homes that fit your budget. Once you sign on the dotted line, you can start preparing to move. Depending on where you buy, buying a home can often be cheaper than building one. Buying a home can also offer you more options in terms of locations, given that empty lots are not particularly easy to come by in neighbourhoods that have been around for a while. Many homes also come with landscaping.
  • Downsides. One of the biggest downsides to buying an established home is that you may not be able to renovate or modify it in the way you desire, and it's often not easy to find a home that matches your specifications down to the last detail. Buying a home can also require you to spend money for repairs or to fix it up. You might not account for all these expenses when taking out a home loan, resulting in an added financial burden down the line. Old homes require a thorough inspection of plumbing, wiring and fixtures before you decide to purchase them.

Building or buying? Compare your home loan options

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.54%
2.56%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
2.49%
2.49%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
homeloans.com.au Low Rate Home Loan with Offset - LVR Under 60% (Owner Occupier, P&I)
2.29%
2.31%
$0
$0 p.a.
60%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
2.34%
2.34%
$0
$0 p.a.
60%
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
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Data indicated here is updated regularly
$
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
Greater Bank Great Rate Home Loan - Construction Loan (Owner Occupier, P&I)
3.66%
3.67%
$0
$0 p.a.
90%
Fund the construction of your new family home with a very competitive variable interest rate. Available with a 10% deposit.
Heritage Bank Discount Variable Home Loan - LVR ≤ 80% (Owner Occupier, P&I) New Customers Only
2.78%
2.83%
$600
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
ANZ Land Loan - Owner Occupier (P&I)
4.39%
4.49%
$600
$5 monthly ($60 p.a.)
90%
Buy vacant land with a competitive interest rate. 5% deposit option available.
Heritage Bank Fixed Rate Home Loan - 2 Year Fixed Rate (Owner Occupier, P&I) New Customers Only
2.59%
4.30%
$600
$8 monthly ($96 p.a.)
95%
Get a partial offset account and the option to make interest-only repayments.
Sydney Mutual Bank Special Fixed Home Loan - 3 Year (Owner Occupier, P&I)
2.28%
2.86%
$250
$0 p.a.
95%
A competitive fixed rate loan for home buyers. Available with a 5% deposit.
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Logo for Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)

Up to $3,000 refinance cashback. A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.

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St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).

Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.

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UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate

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2 Responses

  1. Default Gravatar
    DaleOctober 5, 2018

    In some locations, new homes are approx $100k more expensive than existing homes to buy. Would you expect this gap (100k) to narrow over time? If yes, how long long or when do existing homes sell for the same price of new homes?

    Thanks

    • Avatarfinder Customer Care
      MayOctober 7, 2018Staff

      Hi Dale,

      Thanks for your question.

      Well, we can’t really tell if the $100K gap would reduce or narrow overtime as it would greatly depend on the market. Other factors would also affect, for instance, the cost of construction. Not only that, we won’t be able to know if how much stamp duty will be imposed on newly established homes versus those that are newly built in the future. Stamp duty on properties would vary per state though.

      Hope this helps.

      Cheers,
      May

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