Is it cheaper to build or buy?
We answer the age-old question with data
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 price||Maximum estimated construction costs||Total|
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||$15,740||Yes, for land valued between $350,000 and $450,000.|
|Melbourne||$14,870||Yes, 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||$7,084.80||Yes, for vacant land under $400,000.|
|Adelaide||$7,680||Only for those buying a new apartment within certain locations in the City of Adelaide.|
|Perth||$7,657||Yes, for land worth between $300,001 and $400,000.|
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.
|City||First Home Buyer Grant for building?|
|Sydney||Yes, the $10,000 First Home Owner Grant is available for construction of new homes valued up to $750,000.|
|Melbourne||Yes, the $10,000 First Home Owner Grant is available for building a new home valued at up to $750,000.|
|Brisbane||Yes, borrowers building a home valued at up to $750,000 are eligible for the $15,000 Great Start Grant.|
|Adelaide||Yes, a First Home Owner Grant of up to $15,000 is available for the construction of new homes valued up to $575,000.|
|Perth||Yes, the $10,000 First Home Owner Grant is available for the construction of new homes.|
|Hobart||Yes, new home construction is eligible for the $10,000 First Home Owner Grant.|
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.
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:
|City||Median house price|
Source: Domain Group
Now let’s factor in stamp duty.
|City||Median house price + stamp duty|
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.
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
An Aussie mortgage broker can find the right home loan for you.
- FREE Suburb and Property Report with every appointment.
- Access 3,000+ loans from over 20 lenders.
- Get expert help with your loan application, including paperwork and eligibility.
The Adviser’s number 1 placed mortgage broker 7 years running (2013-2019)
Need a real estate agent? Start comparing your options
|Provider||Details||Get in touch|
|OpenAgent||Go to siteMore info|
|Commingle||Enquire nowMore info|
Receive a free property valuation, compare agent commissions and fees and choose the best real estate agent for you with Commingle.
- Save time and money finding the right agent to sell your property.
- Commingle is a free service that can negotiate on your behalf to get the best deal.
- All your details will remain confidential.
Home Loan OffersImportant Information*
Owner occupiers looking to refinance can get one of the lowest rates in the market with this variable rate mortgage. $0 application fee and $0 ongoing fees.
Take advantage of a low-fee mortgage with a special interest rate of just 2.84% p.a. and a 2.84% p.a. comparison rate.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
Ask an Expert