With shows such as ‘Grand Designs’ capturing the hearts and imaginations of Australians all over the country, it is little wonder that the building bug has bitten many home owners and investors.
But what is not often mentioned is that these ‘grand designs’ can threaten to break the bank!
BTM Tax Depreciation have a simple construction cost guide that may be useful while planning your dream housing project.
Now, we must make clear that these are still rough estimates. Any builder who is concerned with quality product will tell you that a construction cost guide based on a per sqm rate is never going to be exact – however it’s a good place to start.
Assume you purchased a 100 sqm lot of vacant, inner city land at $712,500, with the idea of constructing a 3 bedroom home, the most commonly occurring type of house on the market.
A number of questions facing you include:
- Do you go for either a low or high quality finish – or something middle of the road?
- How much site coverage will your new home take up?
- What type of materials will protect your asset from the elements?
- Will you go up and create additional levels and balconies?
- What are the challenges for building your dream property?
If we made a presumption that the property comprised two levels and the structure had a site coverage of 75% – we could make the following observations depending on the quality of construction.
A two story dwelling with 75% site coverage over two levels would have a total build area of 150 sqm (on a 100 sqm block of land) with a construction cost guide of $2,160 per sqm using the architecturally designed rate for a low level finish.
This would mean an investment of $324,000 into the construction of the home on top of the land cost of $712,500. You would expect the property to be worth at least $1,036,500 plus costs to retain your financial investment.
Now, if the land cost was that high, we feel you might be going a little “light” in regards to the quality of the construction and not maximising the strong position of the property. A medium level finish would expect an investment of $487,500 on top of land costs. This starts to feel “right” as to the expectation of investment. You now have a total investment in the property of $1.2m + costs.
Presume you decide to push the boundaries and swing for the fences. You are going to build the best home around and utilise the small block to its full potential. Be prepared for $5,050 per sqm in construction costs.
This means you now have a house, that required more investment than the land itself, a total of $757,500 to build the house which equates to $1.47 Million plus cost as your total investment. If you wanted to ensure that your labour of creation didn’t mean that you were highly over capitalised, you really need to seek the ﬁnest land conditions (views, position, proximity, scarcity) to make these dearer finishes work for you.
When considering a vacant lot of land, one should contemplate whether the value of ‘creating’ would be able to trump or even compare to what has already been created.