Friday, 17 November 2017

How to build a house Part 4. Paying for the bloody thing

Financing is the main thing stopping many people from building their dream homes. Still others are forced into building a house because they have access to finance​, and that may turn into a nightmare.​

Unless you are one of the lucky few with enough cash to pay for a house up front, you probably need to get a mortgage. Banks can decide who to lend, or not to lend to, but as with many things, the biggest factor is whether you want to borrow money or not. As Henry Ford said, "whether you think you can, or think you can't—you're usually right."

I've heard foreign residents in Japan say that banks won't lend to them if they don't have permanent residency and permanent employment somewhere. That's certainly true if they think it's true, and don't go and ask any banks.

If you want to get a loan, then get it while you are employed. The bank will be happier to lend if you have a steady income, that has been paid into your bank for several years. Before I got a loan I was worried that I would be stuck to my job forever. I was also somewhat scared of monthly repayments until I'm into my seventies. As it happens, after getting the loan I felt much less chained to my current job, and I hardly think about the monthly repayments. ​They're just like rent, which I had got used to paying. ​

Money used to be bits of metal, then it became bits of paper and later bits of plastic. Now it's just bits on a computer somewhere. It's not a particularly scarce resource, but that may be easy for me to say with an overly privileged background and a life of undeserved comfort​!​


But​ whether you're paying in cash or from a hard-fought loan, the question remains: how much is the bloody thing going to cost?

It's like when you go to a restaurant and look at the prices on the menu. Except there are another few noughts on the cost of everything.

Glass of wine 300 yen. Light fittings: 300,000 yen.

Salad 500 yen. Bathroom: 500,000 yen.

Paint. You want paint?

This should not be surprising when you consider how big a house is.

The glass in our windows could have made a thousand drinking glasses, and the tiles on our floor could make a thousand ​plates. I don't want to think about how many chopsticks the wood could be split into.

It's important to understand the difference between price and cost​, which are not the same. Basically price is what you pay to get something, and cost is what the person who gives it to you had to pay. Businesses stay in business because of the difference between price and cost, and often the relationship is arbitrary. The price depends on how much ​the customer ​is able to pay, and how much other people are charging, not on how much it will cost the​ supplier to produce. The costs can't stay above the prices for long, unless that is funding another revenue stream​, as when Gillette sold shaving handles below cost, or even gave them away because they could make money out of the razor blades.

​House builders are in almost exactly the opposite situation. Once you buy a house from them, you will never buy anything from them again. In fact there is a chance that you will demand some extra work from them to fix the inevitable problems that houses come with. This means they need to ​make all their money up front.

There is a large margin on houses in Japan, ​and​ they will basically charge you as much as they can get away with. If you start asking questions, they can easily justify any price they want by producing pages of lists of items with prices to the yen. Most of these item prices will also have large margins either because they have hiked them, because they are list prices and the actual amount they pay suppliers is much less, or because they are over estimating numbers or lengths or weights.

You could pay anything between 10 and 50 million for a house. Paying more will not necessarily increase the resale value of the house. ​In Japan, the value is basically in the land. In most places land is​ a good investment​ because they don't make it any more so its ​value increases over time​. There are some fluctuations, so timing can make a difference, and the exact location could be vulnerable.

Building a house may not be a good investment in financial terms. But in terms of security it gives you a more solid foundation in the community, and also​ more​ psychological​ stability​, so is worth it if you plan to stay in Japan. Find somewhere you want to live!

​Building a cheap house may end up costing a lot more long term in heating and maintenance.​ These costs are usually not taken into consideration when you're building, but the heating bills are also coming out of your bank each month, just like the loan repayments. The difference is that one day the loan repayments will stop, but you're still going to have to pay for heating and cooling. Even when they do tell you how much the energy bills will be, actual heating and cooling costs are typically twice the estimates and simulations.

​Building a Passive House, or at least using Passive House software during the building process, will give a much more reliably estimate, and will allow you to make realistic comparisons between the cost of heating and the initial costs. ​