Homeownership–To build or to buy, the dilemma of the millennial

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By: Prince Yaw Antwi

Although this blog post is targeted at millennials, it may impact those 35 years and above in their housing decision.

This age-old dilemma has plagued many and we are by this post seeking to address it with facts and present readers with options on choosing the path they can afford while meeting their set housing goals.

There are pros and cons to each path, whether to build or to buy. We will start off by considering the pros of building then proceed to the cons.

The post will then consider the pros of buying and the cons thereof.

Pros of Building a House

There are two major pros of building a house; the customisation that comes with it and the little to no maintenance in the early years of owning it.

In a quick survey we conducted prior to writing this post, most of our respondents mentioned that they all had dream homes they wanted. Building a house affords the individual the opportunity to get what they want in terms of design and fixtures.

There is also the satisfaction that comes with walking into a new home you created yourself and that sense of achievement is satisfying.

In the area of maintenance, preowned homes or those built by developers tend to have issues that require fixing and this is avoided when one builds their own homes.

Building a home also affords the owner the opportunity of living in their desired communities as long as there are bare lands available for sale.

Cons of Building a House

The cons on the other hand include amongst others the cost involved in building a house. In Ghana, the cost of land is a major factor. The price of land in the major Accra area is out of reach for the average income earner (refer to our previous post https://baobabpsc.com/news/).

As a result, most families are able to purchase lands in the outskirts of major cities which may be cheaper but not immediately habitable.

The issue of multiple land sale by the owners makes buyers end up paying up to three times for the same land. Then comes the cost of securing the lands with periodic visits to ensure there is no encroachment.

However, when buyers have funds they start building immediately like our friend Ali (not his real name), a media officer and middle-income earner who built a two-bedroom house on a half plot, expandable to four bedrooms later in life for less than GHS150,000 in the outskirts of Accra in a year).

This then leads us to the second cost item which is that of building materials which tend to have volatile prices over the years.

The cost of labour and supervision when summed makes the initial cost of building soar two to five times from the budget.

We need to add that most building projects are self-financed or from personal bank loans which takes a toll on the families who usually pay rents while financing a construction project.

Tied in with the cost of building is the wait time before it can be occupied. It takes an average of 10 to 15 years to complete a building project due to the reasons stated above.

These neighbourhoods also lack basic infrastructure of roads, electricity and water connection and homeowners have to use their personal resources to bring water connection and electricity to these communities. Families are therefore unable to move into their homes immediately.

This is compounded with the stress it takes to complete a building project from the cost overruns and having to deal with artisans.

These can be mitigated when the prospective client employs the services of professional builders who will need an agreement on timely release of funds to make the building ready within the specified time frame.

Pros of Buying a House

Buying a house provides an individual with the convenience of having a place to call their own immediately and saves rental cost which most builders do not have. If one intends to finance the purchase with a mortgage and not personal funds then the down payment which is usually 20% must be saved way beforehand.

It is also widely accepted in the finance space that households should not pay more than 30% of their income towards rent and by extension in mortgage payments.

Having cleared this hurdle, buying a home is convenient for people who are not keen on building a dream home just yet.

Our excitement stems from the fact that your monthly rent can be used to pay for the mortgage compared to while paying rent and financing your own building.

We have a story of Ama (not her real name) a middle-level supervisor in a corporate job who paid up her 20-year mortgage in 7 years.

There is one other benefit of taking a mortgage for one’s primary residence which is the tax-deductible interest that people can redeem from salaries (these would be discussed further in our next blog post where we teach how it can be done)

Buying a house involves finding the right house, one gets to live in a neighbourhood they like, speaking to a real estate agent and doing the paperwork.

Although this may be stressful, it cannot be compared to the stress of building as discussed above. One does not have to supervise workers, connect water and electricity to the homes, paying multiples times for land and securing people to guard the land.

The stress of registering the title to the property is also avoided since the real estate company does these for homeowners. These homes are usually in gated communities which provides security and a network of professionals to connect with.

There are also roads and good schools and these places are planned, all geared towards adding value to the properties.

One complaint most Ghanaians have is how expensive these homes are. Truth is in the real estate industry, there is a house to meet every pocket but the distance and quality of building must be considered when choosing. Home buyers need to engage professionals in this process.

The one downside to buying a house is the lack of customisation. Homebuyers who purchase prebuilt or pre-owned homes do not have the opportunity to make contributions to the structure.

This is however changing, where developers now involve heavily, prospective homeowners in the building process.

There is also the complaint of less quality homes but as the forces of demand and supply work, developers who put up less than quality homes end up losing clients and this leads to a sanitisation of the market.

There is also the concern of how expensive mortgages are in Ghana where customers think through paying twice the amount borrowed over the length of the loan and hence are discouraged.

The alternative then is for them is to take 10 to 15 years to build their own homes. There are ways this can be mitigated so that a mortgage is beneficial, (which is a masterclass we are developing).

Conclusion

To conclude, this dilemma is an emotional subject and individuals tend to operate with that bias. There are erroneous assumptions about the two approaches but we advise that prospective clients research the market and engage professionals in the home searching process.

Also, whichever of the two one chooses ought to be affordable and not put them in dire financial need. Also with about 80% of the Ghanaian economy being informal, getting unto the housing ladder via mortgages is difficult and the actors in this sector cannot gather the funds needed for an outright purchase.

There is therefore the need for some form of government assistance (to be addressed in our next blog post). We at Baobab PSC LTD would say buying is more advantageous than building and it helps people get long-term income and cashflow in their quest to build a real estate portfolio.

This then paves way for people to build their dream homes if they so choose, thereby killing two birds with one stone.

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