Real Estate Talk:
Buying or building a home?

Purchasing a home vs. buying land and building a home

By Joseph Marovitch

February 3, 2022

During the pandemic, densely populated areas, mainly the downtown cores of any city, are the most stricken for COVID-19. As such, people have been selling their homes and moving to the country or further away suburbs.

The prices of country homes, lakefront and mountain property and various suburbs have risen significantly due to the demand. The sudden demand and consequent purchase of all these properties have caused a shortage of inventory. Property that arrives on the market attracts many buyers, multiple offers and a very high price.

With difficulty finding a property in less dense locations and at a reasonable price, many buyers have thought of purchasing land and building their own homes. In the past, building one’s own home was less expensive by about 10% to 25%. Labour and material were cheaper, and so was the land if the buyer did not already own property.

In the past, building one’s own home was less expensive by about 10% to 25%… This is not the case today.

This is not the case today. Due to increased demand and slower supply chains to deliver material, the cost of labour and material is higher and, in many cases, difficult to acquire. When deciding to build a home, there are more costs than just the house. On average, a pre-fab house with base finishings is $250 per square foot. Therefore, if a 2-bedroom house has 1600 square feet, the cost of the base model would be $400,000 plus tax. If the home includes above-average finishings, the sky is the limit in price for just the house.

Other expenses to consider are the following:

Land cost – One acre in the townships or Laurentians, not lakefront: $100,000 plus
Lakefront – $3.50 to $5 per square foot (1 acre = 43,560 sf = $152,460 at $3.50 psf)
Water well: $15,000 to $25,000
Sewage system: $10,000 to $25,000

Therefore, if one were to purchase a property to build a 2-bedroom lakefront house on one acre in an average not too expensive municipality, the average price would be:

House: $400,000
Land: $152,460
Water well: $ 20,000
Sewage system: $15,000
Sub Total: $ 587,460 plus tax
GST: $ 29,373
PST: $ 58,599.13
TOTAL: $675,432.13

The advantage of building one’s own house is the property would be as close as possible to what the owner wants and without defects from wear and tear. The disadvantage would be difficulty in acquiring material and controlling the cost. The owner would require time and energy as well to oversee the project.

‘Building requires a buyer’s time, energy, and money. Purchasing an already built home requires less time, less energy and money.’

In the case of purchasing a home already built with the land, the advantage is the home may meet all the buyer’s criteria and if it does not, the buyer can renovate to their taste. The buyer can move in faster. Prices range from $250,000 to $1 million-plus, and it is possible to purchase a 3-to-4-bedroom lakefront property for $500,000 in some locations.

In either case, prices have increased significantly in the past two years, whether buying or building. Building requires a buyer’s time, energy, and money. Purchasing an already built home requires less time, less energy and money.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.

Next article: Investor speculation and the effects on the market

State of the market

For those keeping a watchful eye on the market, you may have noticed a slight increase in property for sale. This may be the result of a weakening pandemic and the news of interest rates about to rise as of March 2022. In a recent report by RBC Economics, it is stated that higher interest rates and new restrictions on speculating investors will decrease the demand for real estate.

However, according to the report, these measures will not bring down prices as there is still very strong demand and historically low inventory. RBC expects prices to continue to rise but at a slower rate than the past two years. It is expected that we will see less demand in the second half of 2022 after rates increase in March.

‘In a recent report by RBC Economics, it is stated that higher interest rates and new restrictions on speculating investors will decrease the demand for real estate.’

One other interesting note in the report is that housing starts have increased in the past year despite construction delays, labour shortages, and supply chain slowdowns. Developers, seeing the opportunity in the demand for homes, have been proactive. Developments started months ago are nearing completion. According to the RBC report, it is expected that developers will continue to take advantage of the situation and build even more in 2022.

Have a great week and stay safe.

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