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Plot and plan: The pros & cons – what you need to know

Plot-and-plan means buying a plot of land and funding the construction of a property on that plot. There are pros and cons to this approach. We discuss.

Plot and Plan
Moving into a newly built home is an exciting process. The home will usually be constructed with modern lifestyles in mind, and it’s nice to know you’ll be the first to live there.

There are two options when purchasing a newly built home; turnkey and plot-and-plan. In the case of the former, the developer owns the plot of land and what’s being built upon it; while with the latter, you purchase the plot of land on which the development is being built.

How does plot and plan work? You purchase a plot of land and it is transferred to your name. There are two plot-and-plan agreements to be signed, one for the plot and one for the construction, which you will need to fund. The cost of the construction is split into three or four payments, which are made at various stages of the construction process.

Here, we discuss the pros and cons of the plot-and-plan approach.

<h2> Plot-and-plan versus buying a home

Buying a ready-made home has its advantages. Utilities and fixtures will already be in place, and naturally, it’s less expensive. Building  a new home costs 20-30% more than buying one, on average.

But the advantages of plot-and-plan include:

  • Saving on transfer duty, a tax which is not charged on newly built homes.
  • You can claim depreciation on taxes.
  • You’ll save on maintenance costs.
  • You can have the home built to your exact specifications, which you and the developer will agree on before hand.
  • The home can be built with modern energy and water-saving features in place.

On the other hand, you face the challenge of finding a plot of land. This can be difficult in certain neighbourhoods. You should employ an estate agent to advise you on this.

Note that any builder must be registered with the National Home Building Registration Council (NHBRC). Make sure your developer is before making any agreements.

<h3> The cost of building a new home

As of October 2021, the average cost of building a home is

  • R19 230 per square meter in KwaZulu Natal.
  • R15 730 per square meter in Gauteng.
  • R14 050 per square meter in the Western Cape.

Using these estimations, you can determine the likely cost of building a home, and add that to the cost of the plot of land to get an idea of what you’ll have to pay overall.

<h3> Additional costs of plot-and-plan

Bear in mind that you don’t just pay for the plot and the construction of the property. There are a number of additional costs that aren’t made evident up front, such as:

  • The cost of hiring an architect to plan the development. Architects typically charge 5% to 15% of the construction cost, or they charge an hourly rate (R750 to R1800 on average)..
  • The cost of having plans drawn up. You pay an architect or draftsman per hour to draft the blueprints.
  • The fee for submitting the building plans to the council for approval.
  • The cost of having utilities such as water, electricity and plumbing connected.
  • Rates, taxes and levies, which you are responsible for on a plot of land that you own.

<h2> Getting a home loan on a construction project

Applying for a building loan is a similar process to applying for a home loan, with the difference being that the bank pays out the loan in stages rather than all at once.

Whether you’re applying for a building loan or a home loan, ooba Home Loans can assist you by submitting your application to multiple banks, thereby helping to secure you low interest rates.

We also offer a range of tools that can make the home buying process easier.  Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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