To build or to buy? This question is one of those that plagues potential real estate investors. If you’re reading this, then you’re probably considering the question as well. The conversation around choosing between building or buying a house is one that requires nuance and consideration of multiple factors. This article will take an in-depth look at 5 factors to consider and the key things you should know before making that big decision.

 

So, what are these 5 factors to consider?

Agent fees have a huge impact on the total cost of property acquisition:
For most people, cost is perhaps the biggest determining factor. Generally, opting to build a property by yourself  is cheaper because of the elimination of fees such as developer’s fee (profit), agency fee etc. While agency fees typically range between 5% and 10%, the lack of proper regulation means that developers have no limit to what they can charge. In some cases, they charge as high as 80% to 100% for a project depending on the location, demand, and amenities. Consequently, these fees cause a significant increase to the final asking price of a property. However, the potential savings from choosing to build a property could be quickly eroded in certain situations. For instance, in a situation where the cost of land is extremely high, buying from a multi-unit structure like a high-rise will be more affordable since the land cost will be spread across all the units.

Buying a property is a more convenient alternative:
Choosing to build a property will require you to deal with multiple contractors for various reasons which can be hectic. Without adequate knowledge about building construction, you will be put at the mercy of contractors. In addition, monitoring the progress of a project is a tedious exercise as it requires several visits to the site to track the status of the project. Finally, to build a property you need clearance and building permits from the state and local governments. This will require multiple visits to the state and local government houses to ensure the permits are processed and issued accordingly. Overall this process can be very hectic and time consuming. Alternatively, buying essentially means bypassing these hurdles thereby saving up on time and energy.

Completed buildings may not satisfy buyers’ taste:
If you’re someone with very specific tastes, finding a finished building that meets your standard might be a challenge. Here, the choice to build or buy will come down to how much control of the building design you desire. Where a very high degree of control is desired, building by yourself is likely the best option. However, where minimal control is needed, buying provides you with different options to choose from. Also, depending on the degree of flexibility, it is common practice nowadays to buy uncompleted projects to finish up and fit out as desired.

Choosing to build gives you control over the quality of materials used:
When you build your house from scratch, you have total control over the type and quality of materials used in its construction. This way, you can ensure that the right building standards are adhered to. As a result, you get to save money on maintenance costs down the line. Buying can be equally considered in cases where you’re assured that the developers and contractors are trusted and maintain high standards.

Financing options makes buying an attractive choice:
Generally construction loans are more expensive than mortgage loans, this is due to the  risks involved in financing a home build. Construction loans also typically have shorter tenures (1-3 years) as opposed to mortgages that could run for up to 25 years or more. In Nigeria, the National Housing Fund (NHF) offers loans for either construction or outright purchase, however, neither of these is easily accessible. In addition, according to the Federal Mortgage Bank of Nigeria, the NHF loan is limited to a maximum of fifteen million naira per applicant. According to the CBN, the average maximum mortgage rate charged by Deposit Money Banks (DMB’s) as at August 2022 was  24.75% while the average prime rate was 16.94%. 

In a recent press release, the National Pension Commission (PENCOM) announced its approval of Retirement Savings Account (RSA) Holders to pay for their Mortgages from their Retirement Savings account. This is a major development in the residential mortgage market in Nigeria. 

In conclusion, the choice to build or to buy is unique for every investor

Making the final choice ultimately depends on you, the investor, and what your preference or circumstance is. All five factors listed above are integral to helping you make the right choice for you. Potential investors with specific tastes and availability will likely opt to build, while those that are flexible about their demands are more likely to buy instead. After considering all these factors, which option are you more likely to choose: build or buy?

Whether you’re looking to build or buy, you can make informed, data-driven decisions using accurate real estate data when you subscribe to Estate intel. You can also get valuations and building estimates for your project from Estate intel’s new interactive platform, Vesper.

What are your thoughts on Build or Buy: Factors to Consider Before Making a Decision? Send us an email at [email protected] with your views!