What should I consider when buying land to build a home in South Africa?

When buying land in South Africa, consider accessibility to schools, transport and amenities, soil conditions such as clay or dolomite, whether the ground is level, zoning and building restrictions, and whether infrastructure like water, sanitation and electricity is available.

How much should I budget for building costs?

You should compare quotes from different service providers and budget at least 20 percent extra for unforeseen costs. Ensure your builder is registered with the NHBRC and include costs such as boundary walls, pools, and professional fees. Landscaping and finishes are usually excluded.

What is the process for building a home?

The process includes buying land, applying for a building loan, drawing up plans with an architect, appointing an NHBRC-registered builder, and submitting required documents such as building plans, contracts, certificates, and bills of quantities.

How does a building loan work in South Africa?

A building loan is based on the future value of the completed home. If there is a shortfall, you will need to cover the difference. A deposit may be required if the approved amount is lower than requested.

How do building loan progress payments work?

Progress payments are made in stages as construction milestones are completed and approved by a bank-appointed evaluator. Typically, up to six payments are made, with the final payment released once occupancy certificates and insurance are confirmed.

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Here’s what you need to know

Buying land
When looking for land to buy and build on:

Think about accessibility: Your future home should ideally be close to schools, public transport, hospitals and shopping centres, to make life easier for you.

Check the soil: Clay and dolomite will require a stronger building foundation, which means that your materials will cost more.

Consider whether the ground surface is level: If not, you’ll need to hire heavy duty machinery to dig and level out the area or you’ll have to hire extra workers to do this by hand.

Check building/zoning restrictions: Consult an architect and town planner to determine whether you can build your home on the land you want to buy.

Consider the existing infrastructure: Find out whether the local municipality provides water, sanitation and electricity to the area.
Building costs
What you should do:

Get several builder’s quotes before you begin.

Check your builder’s previous history and get references.

Make sure your builder is registered with the National Home Builders Registration Council (NHBRC).

Plan for weather and unforeseen circumstances - budget at least 20% extra for these and ensure that this is written into your contract

Agree with your builder on each and every add - on or deviation including the costs. Make sure any deviations or add- ons are written down to avoid later disagreements on the increased costing. All deviations must be included in the building contract when submitted for the building loan. The bank will only base payments on the contract sum provided.

Things to look out for:

Simple square houses will cost less than complicated structures.

Boundary walls and swimming pools will be extra costs that can be included in the building contract and may also be bonded by the bank.

Landscaping and finishes (including fixtures and fittings) should also be included in the building contract but will not be covered by your bond which means you will have to pay for these costs out of your own pocket.

Professional fees (architects, engineers, project managers and NHBRC enrolment) must be included in the contract and will be paid as part of the contract through progress payments. These fees are not paid upfront but calculated within the total contract price and paid proportionately with each progress payment.

During the building period, if there are deviations from the original building plans submitted, please advise us immediately, for example moving walls, adding a patio etc., this may increase costs and delay payments.

Expiry of the builder's registration certificate before 100% completion of the project can also cause further delays.

We advise you do not sign a contract with the requirement of upfront payments or pay the builder for work not completed yet or deposits for materials not provided and installed as the bank will not make upfront payments.
The building process
Find your land.

Use our affordability calculator to see how much you can afford.

Draw up building plans with an architect.

Find a builder who is registered with the NHBRC and get a quote plus a signed contract.

Ensure the contracted payment schedule aligns with the banks payment process and a maximum of 6 payments are permitted.

Ensure your building contract period aligns with the banks 12 month building loan period.

Get the following documents from your builder:

On application:

Tender (up to R10m); Bill of Quantities (above R10m)

Signed Building Contract

NHBRC Builders registration certificate

Schedule of Finishes

Building Plans – For the purpose of the loan application, the plan does not have to be approved. However, the final plans will need to be submitted to and approved by the local authority. Note, if the plans provided deviate from the approved plans, the application would need to be reassessed.

Prior to registration:

Signed Waiver of Builder’s Lien (Absa form 1295BX)

Minimum Specifications (Absa form 1284EX)

Builders all risk insurance policy document
Your Building Loan
Your building loan is based on current market value (not replacement value or actual building cost) of your property after it is completed. So, the amount of the loan will often not cover the full building costs and the cost of your land. The difference is called the shortfall (or own contribution) and you will be required to pay this yourself – make sure you calculate this cost upfront.

Over and above the shortfall (or own contribution) you may have also received a lower building loan amount against the property value. As a result, a deposit may also be required.
Building and progress payments
The builder will first complete the foundation of the building.

You will have to pay your builder according to the terms of the contract that you negotiated with your builder.

If there is a difference between the contract amount and the approved loan amount, you will be required to make your own contribution and exceed this with a further 10%, or more before a progress payment request can be considered.

Once you have done that you can then request your first progress payment from the bank.

A bank- approved valuer will assess the work and sign off. Certain professional certificates may also be required at different building phase completions before payments will be made.

Please note the Absa valuer is not an engineer nor a financial expert - so they cannot give you any advice regarding your structure or your finances.

During the 9 -month period we will pay out your building loan on ‘progress payments’ requested by you. These payments will be subject to valuations inspections done on completed work.

Important: we will add interim interest, at your yearly variable interest rate, on the progress payments made from your account, monthly, in arrears, until the day that the final amount of your Mortgage Loan is paid out. If you do not make interim payments to cover this interest, the funds available under the Mortgage Loan will be reduced and may not be enough to complete the building. Because of this, it is highly recommended that you pay your interim interest every month during your building period.

We allow for 6 progress payments during the building contract period. Final payment is only made once work is completed, and you have obtained an occupational certificate from your municipality.

The bank will require confirmation of Home Owners insurance.

You have the option to pay for the interest during the building loan period via Debit Order.

You have the option to pay for the interest during the building loan period via Debit Order. We will email you an automated Progress Payment Letter post payout of the first progress payment and any further progress payments during the nine month period. The Progress Payment Letter will confirm to you the payment made, interim interest payable post pay out and outstanding balance of funds as of the date of the letter. Additionally, you will also receive quarterly eStatements during the building loan period, clearly reflecting the interim interest amount due.The first repayment is due on the repayment day, as chosen by you in the next month after the final payment is made, or nine months after registration, whichever occurs first.

The best way to build your home

Building a home exactly the way you want it is a dream for many people, but it is possible. Careful planning, budgeting and making sure you have a reputable builder – along with lots of guidance - is the only way to do it. It doesn’t cost a cent to plan so why not start now? Your dream home could be nearer than you think.