This article provides an overview of the costs associated with building a custom home, aimed at those considering custom home construction or looking to build within their budget.
The expenses for constructing a custom home vary depending on your desired layout and features. To help you visualize the finished product, we have summarized the characteristics of custom homes categorized by budget.
We hope this information will assist you in creating your ideal living space.
Required Funds for Custom Homes According to Public Data
The average cost for a custom home, excluding land costs, is approximately 38.63 million yen nationwide. While many areas in the metropolitan region exceed forty million yen, there is slight variation across different regions.
In contrast, the cost of acquiring land shows significant regional differences. The national average is 18.4 million yen, but in the three major metropolitan areas—Tokyo, Kansai, and Tokai—the average rises to 25.13 million yen, nearly seven million yen above the national average.
Depending on the desired land size and layout, when considering land purchases in the metropolitan area, the total required funds could exceed sixty million yen.
References:
Japan Housing Finance Agency, "FY2023 Flat 35 User Survey"
Japan Housing Finance Agency "FY2023 Summary Table (Custom Housing)"
Cost Balance Between Land and Construction
The cost balance between land and building construction is generally suitable at a ratio of 3:7 or 4:6. For instance, if the total budget is 40 million yen, the land cost should ideally be between 12 to 16 million yen, while the construction cost would be between 24 to 28 million yen.
If a larger portion of the budget is allocated to land, there may not be enough funds left for building construction, which could lead to higher-than-expected construction costs. Additionally, if a ground survey indicates the need for ground improvements, further expenses may arise.
For these reasons, it is advisable to keep land costs up about 30% to 40% of the total budget.
In areas like the metropolitan region, where land prices have surged, the cost balance tends to lean more towards land expenses. Be cautious, as the amount you can allocate for construction may vary depending on your desired area.
Home Loans Available Before Handover
Building a custom home solely with personal funds can be quite challenging, and many people turn to home loans for assistance. Here, we introduce two types of home loans that can be utilized before the handover:
• Land-Advance Financing
• Bridge Loans
Both options allow you to receive financing at the time of land purchase, which is a key benefit. However, the interest rates for both are generally higher than standard loans. It is important to understand the advantages and disadvantages before selecting a home loan.
Land-Advance Financing | Two-Part System for Financing Land Costs First
Land-advanced financing is a loan that can be used when paying for land. It allows you to receive financing solely for the land costs, and since the land serves as collateral, the interest rate can be lower compared to unsecured loans.
On the downside, there are fewer lenders that offer land-advance financing, and you need to apply and contract in two stages—once for the land and once for the construction—making the process more complex.
Bridge Loans | Temporary Financing for Required Funds
Bridge loans are short-term loans that allow you to borrow the necessary funds before the handover of the home. They can be applied to various expenses, such as land costs and construction fees.
Unlike land-advanced financing, bridge loans can often be contracted in one go, and some lenders may offer unsecured options. However, because they are often unsecured, the interest rates may be higher, and they may not qualify for home loan tax deductions, so caution is advised.
Causes and Solutions for Budget Overruns
When building a custom home, it is common to realize a budget overrun after signing a contract with the construction company.
Many budget overruns occur because homeowners try to include all their wishes in the project. To avoid this, it is helpful to prioritize your requests in advance.
Additionally, overspending on land can also lead to budget overruns. To stay within budget, it is crucial to carefully consider the allocation between land costs and construction expenses.
Not accounting for additional costs or having vague preliminary settings can also contribute to budget overruns. When building a custom home, ensure you have a clear understanding of your overall budget before signing any contracts.
Summary
Building a custom home involves various costs, including construction, land, and interior expenses. Therefore, it is essential to plan your budget in advance. Additionally, consider various loans as needed.
Think about the construction costs of your desired home and the land prices in the area where you want to live, aiming for a home that closely aligns with your ideals.
When facing financial difficulties, please refer to this article for guidance.
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