The idea of having a home built according to your own personal taste is an idea which excites a lot of individuals. As wonderful as this might seem, the truth is that there are significant risks that should be noted.
It is therefore crucial that the track record of the builder be scrutinised. The construction risk is arguably the biggest risk when building a property. Should the quality of the property not be of a good standard, rectifying these problems later might not only be costly but can also result in a potentially unsafe building. Utilising the services of a National Home Builders Registration Council (NHBRC) certified builder can help to mitigate these risks as the NHBRC is an organisation which aims to protect the owner against defects due to bad workmanship.
While a property is being built, an owner is typically in need of other accommodation since the property would not yet be habitable. This usually results in the owner either renting another property or still paying a bond on his current residence. In addition, the owner will be liable for the interest on the land portion of the new property as well as the interest on any progress draws made. Should the project be delayed for whatever reason, the owner would be liable for all these costs for a longer period than was originally planned. This could then potentially result in payment defaults toward the financial institution.
Due to these risks potentially having a negative impact on the financier, the interest rate is usually increased until the project is complete. Should financing be necessary, the bank would require building plans as well as a schedule of finishes to determine the market-related value of the house at completion. This along with the bank's credit policy would then determine the size of the loan being granted. Generally a larger deposit compared to a loan on an existing property will also be required to alleviate some financial loss by the bank should there be any payment default. All financial institutions will also insist that an NHBRC registered builder be used to build the property as the NHBRC keeps a track record of builders and holds them accountable for their quality of workmanship.
Besides the risks involved, it is highly likely that a property may be built for more than what it would cost to buy a similar existing property. This might seem surprising but there are many factors influencing the price of a house and all these factors should be taken into account to establish if the project is feasible. Recent market trends have shown that the gap between the cost of building versus buying an existing home is narrowing but the fact remains that on average, there is still a significant gap.
Is the one better than the other? The answer remains a subjective one and therefore the best advice would be to weigh out all the pros and cons and to fully understand the risks when making the decision. The market-related value and that "sentimental value" that an owner places on his home are hardly ever the same and so, even with the complexities involved in building there is still a fair amount of buyers who can afford it and are willing to pay the price tag that comes with having that dream home.