iBuildNew CEO, Daniel Peterson, shares his expert new home building industry insights on the best time to build a new home.
Well over one hundred thousand Australians build a new home every year and according to Neilsen data almost one million of us consider building a new home each year. As with many things in life, timing is important. So when is the right time to build a new home?
There are several factors you should take into consideration around timing. What is happening with land values? What is the outlook on interest rates? How buoyant is the new build market? How do new build prices compare to general real estate prices? Not to mention the very practical reality of how much longer can you can live in your current home with the demands of a growing family or personal wants and needs around your living space and standards.
Land values
Land values are a critical consideration for buyers that don’t already own a block. Values can vary dramatically from state to state, largely driven by typical demand and supply drivers. In the Sydney market, for example, average land values have increased by approximately 45% in the last 2-3 years. During this period demand was strong but new land releases were few and far between, and often delayed by government approvals and contractor availability with other major infrastructure projects in the state. But over the course of 2016 the pressure has been taken out of rising land prices by the release of several new estate projects, and for the foreseeable future would appear to be creating price stability in that market.
Finance and interest rates for a new home
Most of us will need to borrow from a bank when building a new home, so the outlook on interest rates should be considered both in terms of when you build and the type and structure of your loan. Interest rates are at a historical low in Australia with the benchmark cash rate at 1.5% making comparison lending rates around 4.5%. Put simply there has probably never been a better time to borrow and build a house with some banks offering 5 year fixed interest rates as low as 5%. One should never over borrow, but at today’s rates and with the RBA indicating flat or even slightly lower rates in the year ahead, it generally means you can afford to borrow a little more than during moderate to high interest rate periods.
Demand on builders
The build price will generally be your biggest outlay in a new build project along with the land. But what you pay and what you get can fluctuate significantly depending on the buoyancy and demand in your market. When building activity is high, build prices generally rise, but more importantly most builders offer less flexibility around house design customisation during peak times. At the end of the day there isn’t unlimited contractors and trades available in the market, so builders will look to streamline the build process as much as possible to maximise the new homes delivered with the limited resources. Minimising variations to plans helps on this front. On the other hand, when building activity is a bit slower you are better placed to negotiate with builders on changes and modifications to their house plans, possibly find lower prices and often great promotions packed with upgrade inclusions. With a quieter market in Perth and Adelaide at present (and you might even see Brisbane in a similar category), now is as good as any time to build from this perspective.
General real estate market
Finally it’s always important to consider your alternatives and relative prices. Buying an established property definitely has its pros and cons. When it comes to price, it is generally accepted you will get far more for your dollar building your own home than buying someone else’s property. This common rule however is premised on the assumption that existing property value growth continues to keep pace or outstrip the price of new land and build costs. In most markets across Australia this has been the case, but with recent property value slowdowns in Sydney and Perth this assumption may be challenged in some pockets. Elsewhere however while general real estate prices remain strong and property fundamentals maintain a positive outlook there is great incentive to build a new home.
Taking all of this into account, with slower land growth rates, record low interest rates and great finance deals available, a build market that’s not over heated and even soft in some markets like Perth and Adelaide, and comparatively healthy established property prices there is no doubt the next 1-2 years should remain a smart time to be building your dream home.
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Daniel Peterson
Daniel is CEO of iBuildNew, after building 3 homes himself including dual villas in Bali he has plenty of personal experiences that makes him a strong advocate for the new home building industry.
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