Constructing A House Vs Buying A House

This is one of our favourite questions. Want to know why? Because no matter which option you choose, it’s a win-win situation.

This isn’t one of those blogs where we tell you whether constructing a house is better than buying a house. In this blog, we talk about what goes into both of these plans and which one might suit you the best. 

Whether you construct a house or buy a ready-to-move-in house, you will be able to cherish and enjoy your purchase. The best part is that different points of your life will make you choose different options among buying a ready-to-move-in house and constructing one. 

Now, without wasting any more time, let’s start evaluating which of these two options works the best for you right now.

Cost Of Purchase

As you might already understand, the biggest difference between buying a house and constructing one is the total cost of your purchase. Assuming you have a set budget for your real estate purchase, you would have to allocate the budget differently depending on whether you’re buying a house or constructing one.

Let’s look at the kinds of things that you would have to allocate your budget to.

Cost Of Constructing A House

When constructing a house, you will have to buy a plot of land first. This will be the first major cost that will arise. Buying your plot will also come with all the steps and closing costs that come with buying property in your city. This includes stamp duty, brokerage, registration charges, other loan processing fees etc.

Once you have a plot of land secure with the title transfer done to your name, you can start thinking about the construction process of your property.

1. Hiring A Contractor Or An Architect

Not many people in India hire architects. The stereotype that an architect costs an arm and a leg has a role to play in that. However, if you do the right research, you’ll find out that an architect can cost as low as INR 15,000. The ROI, however, is much higher since even a well-planned small plot can be turned into a spacious home.

Even if you don’t end up hiring a contractor, you will have to hire a contractor. The contractor will streamline your construction process and will help you relax while things like labour and raw materials are taken care of.

2. Cost Of Labour

Labour costs are highly dependent on the timeline of your project. The longer your project goes on, the higher your labour costs will be. 

This is why, you must keep a strong grip on the timeline of your project, ensuring unnecessary delays are avoided.

3. Cost Of Raw Materials

Your biggest expenditure while constructing a home on your plot of land is the raw materials that will be used for construction. From bricks and cement which will be bought in bulk to paint that might be needed for a small section of your house, raw material costs can rack up real quick.

Thus having an estimate of how much raw material is required and how much it will cost is necessary.

4. Civic Costs

Civic costs are costs that occur when you get your construction legally recognized by the local authorities. This includes the costs of getting your plans inspected, and approved.

5. Interior Costs

Interior costs are the costs of finishing up your construction. Once your house has been constructed, you will be required to install furnishings and fixtures to make it livable.

These include furnishings like taps, showerheads, curtain rods, window panes, etc. and fixtures like lights, fans, air conditioning etc.

Cost Of Buying A House

Before we start talking about the costs that go into buying a house, we must get one thing out of the way. The overheads that your budget will be divided into while buying a house will be much less than when you construct your house. However, that doesn't mean that one costs more than the other.

1. Downpayment 

The downpayment is the major bulk payment that you will be making while buying a house in India. In India, it is mandatory to pay a minimum of 20% of the purchase value of the house as a downpayment. 

This percentage can be increased by the developer you’re buying your house from. Also, banks are allowed only to loan a maximum of 80% of the purchase value in the form of home loans.

2. Civic costs

The civic costs attached to purchasing a house are similar to buying a plot. You will have to pay the registration fees, and stamp duty charges to the concerned local civic body when buying a house. These payments are mandatory as they are required to make a legally recognized transfer of ownership of property.

3. Loan costs

The loan cost is the processing fee charged by the bank to provide you with a home loan. In case you’re buying your house with an all upfront payment, you won’t incur this charge. However, most people opt for mortgages as they are financially more beneficial over time and thus have to set aside money for the loan costs.

Advantages And Disadvantages Of Constructing A House

Needless to mention, there are advantages and disadvantages to building your own house. But whether these advantages and disadvantages matter to you would depend on your current situation.

Advantages Of Constructing A House

1. Constructing a house allows you to select your floor plan and create as many facilities as you require.

2. It also allows you to customize your house exactly as per your aesthetic. This means your house would truly reflect you.

3. Since there are no Homeowner’s Associations or committees involved, you don’t have to pay a monthly maintenance fee.

Disadvantages Of Constructing A House

1. Since land loans are considered riskier, banks might charge a higher rate of interest or might not provide you with one. 

2. Constructing a house requires a long time and might be an issue if you can’t afford the rent till your house gets constructed.

3. You cannot accurately estimate the cost of constructing a house beforehand. It always varies and is more likely to increase by the end of construction. 

Advantages And Disadvantages Of Buying A House

Again, obviously, there are advantages and disadvantages to buying a read-to-move-in house. However, it is for you to decide whether these advantages or disadvantages affect your life significantly.

Advantages Of Buying A House

1. Since home loans aren’t considered the riskiest loans, a home buyer can avail the same at a lower rate of interest and lower mortgage.

2. An already constructed home can be bought at a cheaper price if the market situation allows.

3. In case you have a time crunch, you can simply buy a house and move in within a couple of months. 

4. You will be able to access some additional amenities depending on the project you’re buying your home in.

Disadvantages Of Buying A House

1. You might require to search a large number of properties to find something that fits every single one of your requirements. Even after a long search, you might have to end up settling for a house that doesn’t meet all your needs.

2. It might be difficult to negotiate the price on an already constructed house. 

3. For an older house, you might have to spend time renovating old facilities and utilities. 

4. Monthly maintenance costs are charged for most residential units in a developer’s project.

5. You will also be stuck with the floor plan that the builder has already constructed. This means if you wish to have smaller but more rooms as opposed to the builder’s larger but fewer rooms, you won’t be able to do anything about it.

Constructing A House Vs Buying A House: Things No One Talks About

Even though we have mentioned in detail most things connected to constructing a house and buying a ready-to-move-in house, there are still a few things missing.

These are factors that should be taken into consideration while making u your mind about whether you should simply buy a house or construct one of your own. But, these factors are often neglected. Let’s take a look into the things that no one talks about when comparing constructing a house and buying a house.

1. Future Capital Gains 

When you purchase a ready-to-move-in house, you can’t be sure that you will only end up buying a newly built residential unit. The house you buy can be years, if not decades old. The newly constructed house will also be marked up as compared to the other older constructions of a similar in the same area.

This means the appreciation on your property might not be as high in the future.

However, if you construct your house, you can have higher capital gains in the future due to newer construction, as explained above.

2. Sustainability And Environmental Impact

With green buildings and sustainability taking the front row as the most important things that need to be focused on today, constructing a new house might be a better option. You can ensure your construction process is sustainable, the raw materials used have the least environmental impact, and your construction supports a low carbon footprint lifestyle.

That being said, if you find a good developer project that boasts of sustainability and has green building certifications, it will be a better decision to buy a ready-to-move-in house in the project to have the lowest negative environmental impact.

3. Energy Savings

This again is another major factor that impacts the environment and your pockets. Using alternative sources of energy in your home can help you reduce your carbon footprint and also make your energy consumption costs low over time.

You can either consider constructing a house powered in an environmentally conscious way or look for a developer project that has energy savings and alternate energy sources as an option.

4. Utilities

A house needs utilities like gas, water, electricity, etc. when buying a ready-to-move-in house, you don’t have to worry about the availability of these utilities most times. However, while constructing a house, you might have to work on connecting all the abovementioned utilities to your house.

5. Construction Loans

A construction loan is an additional loan that homeowners take out to facilitate the construction of a new home. You might need to take out a construction loan, increasing the number of mortgages you have to pay.

6. Oversupply 

Oversupply is the issue that the real estate market faces when the number of listings far exceeds the number of buyers. With developer projects, this can often become a problem. Developers construct hundreds, if not thousands, of identical homes in the same location. 

Thus, when selling the property, you might be faced with much higher competition as compared to a house you construct by yourself, lowering the sale value of your property.

7. Hazardous Materials

Another major issue that an older constructed house that might be available for purchase and read-to-move-in comes with is the possibility of hazardous materials used n the construction. The presence of materials like lead and asbestos is a very common occurrence in older constructed houses. Since then, these materials have been declared highly unfit for human dwellings.

Thus, constructing a new house could help you avoid any such materials.

Also read: Price Negotiation Tips Every Homebuyer Should Know