Building a New Home

By Tamara Scutcheon


I recently embarked on a pretty exciting journey with my significant other: building our next home together. We found the perfect bit of land, not too big and not too small. Closer to work and which would give us the scope to build the home we’ve both been dreaming of. If you’re like us and have decided to build too, your next few months will be full of collaboration and big decisions to get you closer to moving into your new home. There are several benefits to buying land and building, instead of purchasing an established property. The main financial benefit is the reduction in stamp duty applicable, as you’ll only be charged duty on the cost of the land – not the entire value of the property when it’s complete. Most people however, are drawn to building as it gives them the freedom to design their dream home. Dream fittings and features, an amazing free standing bath, dream layout, additions which are too expensive or too hard to add to an established home. Depending on your budget, building gives you the scope to encompass all these options and more.

After land settlement, the next logical step is shopping to find yourself a builder. There are so many companies vying for your dollars, it pays to take your time in selecting a builder. There’s no substitute for research so you’ll need to spend time visiting display villages and talking to people you trust who have recently built a home. Discuss your cost and quality expectations with all prospective builders and ensure you know what’s included in their standard building specifications. There’s usually a marked quality and price difference between building a home and building an investment property, so ensure you’re talking to people with the same finished product in mind. Look for a builder who offers a fixed price build contract – this is a minimum requirement and will save you thousands of dollars later in the event that things don’t go 100% to plan. Thankfully, the majority of mainstream builders offer a Housing Industry Association (HIA) standardised and approved contract.

Once you’ve decided on a builder you’ll need to narrow your focus to a specific house plan. Most builders will give you the scope to change their plans slightly as you agree to work with them, but it pays to ask upfront if there will be a cost to move a wall or add a display niche. Some builders also offer a complete design process where you sit with an architect or draftsman and start your own unique plan from scratch. Although you’ll already have a good idea of the standard specifications of the build, now is the time to compare quotes to see what your builder will charge for things like footings and other upgrades outside of standard specifications – think flooring, air conditioning or additional storage. Footings and earthworks will depend entirely on your block. Those with steep gradients or reactive soil will need more sitework before a slab is laid which will add to the cost of your build. Part of your initial service fee payment to the builder will cover a preliminary site soil test and complete survey plan, enabling the builder to provide more accurate quotes and allowances to position the slab.

After you’ve agreed on a preliminary quote with the builder the real negotiations start, confirming what extras you’d like and are happy to pay for. At this stage you’ll need to be mindful of any additional cost associated with your selections, things like upgrading your tile size, picking a non-standard colour or material (think stone bench tops or 2pac kitchen cupboards) Builders often charge a premium on extras like flooring and landscaping as they’re simply project managing a third party on the installation. For this reason along with added choice, I’d recommend you speak with third party suppliers for things not usually included in the build contract. Yes, it’s extra running around for you but it could end up saving you thousands over the entire build.

In terms of your finance application, banks will want to see a finalised building contract along with your final third party quotes before starting the application. A handy hint for finance is to ensure your contracts and quotes present a finished property. Think of it from the valuers point of view: when they’re trying to establish the value of your newly completed home, if it’s missing flooring, window treatments or fencing it won’t compare favourably to other similar homes in the area. Once you have the completed build pack and full approval from your bank you’re off and building. Many people don’t realise that banks will pay your builder in stages called progress payments. Depending on your builder, you may need to inspect your partially completed home at each payment stage before the invoice is sent to the bank. Usually a build is split into 5 different progress payments: slab, frame, roof cover, practical completion/lock-up and then handover.

From an owner’s perspective, you’ll need to consider how you will afford your increasing mortgage during the build process. Each time an invoice is paid, your loan balance and repayments will increase. It all comes back to a sensible budget: could you live with family for the few months of the build? Could you use some of your savings to help you balance your rent and mortgage repayments? Alternatively you can discuss the possibility of an interest only loan with your bank or mortgage broker. Interest only loans are just that – you’ll only be required to cover the interest accrued each month on your loan, saving you a couple of hundred dollars a month on a typical mortgage.

In summary, there are a few important non-negotiable points you need to keep front of mind when building a home:

  • Decide on a budget for the final completed home and stick to it
  • Ensure the builder you choose will offer you a HIA fixed price build contract
  • Confirm with your builder the scope for variations to the plan and any additional costs
  • Lock in extra costs early – selections appointments and third party quotes
  • Liaise with your bank or broker to determine if you’ll need an interest only loan during the build

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No representation is given, warranty made or responsibility taken about the accuracy, timeliness or completeness of information sourced from third parties. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.

Anthony Klatt, John Grocke and Mathew Wilkshire are authorised representatives of Paragem Pty Ltd. Paragem Pty Ltd ABN 16 108 571 875, is the holder of Australian Financial Services License number 297276 and these authorised representatives trade as Johnston Grocke.

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