In a market facing trade shortages and rising costs, borrowing to build today requires a smarter financial strategy. Photo: Mode Imagery.
In Canberra’s tight housing market, a quiet showdown is brewing on the city’s urban fringe.
On one side are local first-home buyers, taking advantage of low-deposit schemes to build their dream home. On the other are property investors, newly incentivised by federal tax changes to skip established suburbs and channel their capital into new builds.
Both groups are chasing the same commodities: a block of land and an available builder.
It’s the ideal set-up for a head-versus-heart battle, according to Trilogy Funding managing director David Thomas.
“You’ve got owner-occupiers trying to build their dream home with their hearts, and investors trying to buy with their heads. Now we’ve got an increase of people looking in this space, competing groups in the same market,” he says.
“But there’s still just as many builders and just as many blocks of land available as what there was two months ago.”
In other words, winning the block is only half the fight. In a market plagued by trade shortages, scope creep and rising costs, borrowing to build today requires a more intentional financial strategy.
For many, a bit of “re-education” (read: reality check) is in order.
David says many people work on historical data.
“They think, ‘I know someone who built a house a couple of years ago, and they paid $2500 a square metre’. But now the price is $4000 per sqm to build a house in some areas at some spec levels,” he says.
“Getting some preliminary numbers based on today’s market should be the first step, so you know what you can actually afford, before you fall in love with a plan.”
“Once committed to the block of land or to an area, update the numbers based on any changes in spec level from the standard. Whether it’s heated floors, triple-glazed windows on the south side of the house or granite bench tops, you need all that locked down in an actual fixed-price building contract.”
Trilogy Funding managing director David Thomas says changes to price mid-build are rare, but not unheard of. Photo: Thomas Lucraft.
But what happens when you do all that, and the prices still blow out?
In the world of new builds, where there can be no guarantees on timeframes, a fixed price can’t be taken too literally.
While a contractor can provide a general window of expected completion, any number of variables can blow that out — and time is money.
“There’s only so many concreters that can lay the slab in Canberra, only so many plasterers, painters, joinery companies making kitchens. An interruption to a carefully laid out plan, that’s par for the course in construction,” David says.
“Do you have enough cash available to stay in the property you’re currently living in? Do you have enough money to withstand delays?”
Furthermore, new builds often take years to complete, and a lot can change in that time, including things not covered in your main contract. That’s why you need to build in a buffer.
“For most clients in the current market, we would suggest having a contingency available of between 10 and 15 per cent.”
In David’s considerable experience, changes to price mid-build are rare, but not unheard of.
With any new build, there is a level of uncertainty about what might happen after you break ground, and anything from unseen earthworks to serious drainage issues could lead to unexpected, high costs.
David says there are five steps to getting things back on track.
“First, the bank is going to want an explanation,” he says.
“Then, you need to figure out contractually what’s changing, how much more money you need, and when it must be paid to the builder — a formal contract variation.”
The bank will then revalue the property, reassess your credit to determine whether you can afford the additions to your loan, and finally issue a re-approval with all new documentation.
“If there were some form of shortfall, then we would work with a client to try to work out a way to mitigate it,” David says.
“Does the client have other assets that could be sold, or family members who could help? Is there some form of guarantee loan that we could do to get this completed?
“Typically it doesn’t come to this, but a good lender, a good bank, will look for a Plan B and a Plan C to help a client through the situation.”
But as with anything, prevention is better than cure.
“In today’s market, emotional buying without a financial contingency plan is a massive risk,” David says.
“Winning the block is step one; surviving the timeline requires cash buffers and realistic math.”
Trilogy Funding offers a free, quick-fire strategy session that delivers a loan proposal with clear next steps. To book yours, contact Trilogy Funding.
