Cost of Building a new home Over Capitalising?

Hi There

I have just bought a block of land to purchase our PPOR. I have one investment property im paying off at the moment and this will be to live in since we have been renting for the last 6 years.

I bought the block in the NSW suburb of Aberglasslyn West of newcastle in a newly developed stockland estate. The block size was 540 Square metres with a gentle slope. The house we have chosen on my dads advice a bigger house will get a better resale is a 27 square home 26 squares if you dont include the Alfresco.

Now I have budgeted that after landscaping blinds and all the other crap you chuck at a new house the end figure will be just short of $500K. Yes we upgraded ceiling heights and a few other fancy things. Now the backyard after the cut and fill will need a retaining wall and it will be slopey so any land basically useless but will still have a small backyard I guess.

I was told by another builder that I might be over capitalising. Do you think I may be when I look on real estate I find alot of house and land packages in this estate for $360 to $400K for 3 bedders 19 to 22 square homes which are usually on smaller sized blocks less than 500m squared or 450m squared.
I have come to the conclusion that the average decent home and land package is about $440 to $450K. My spend is approx going to be $40K more than this should I be worried. It is a PPOR but perhaps will be an IP in the future although unlikely however its not our ultimate dream home but its a step in the right direction. Do you think when we resale I will lose the $40K straight up and should I jut settle for a 20 square 3 bedroom home as in reality its all we need the " Mrs" just has expensive taste.

Also do you think $280K for a 27 square home is an ok price from a project builder. It includes all flooring, driveway, connections, ceaserstone kitchen, ducting basically move in just have to do fencing, turf, landscaping, blinds, clothesline letterbox.... In NSW what is the average cost per Square when building
Im really just worried that Im overspending and maybe should spend less and build to the standard that everyone else is building to. Is 50K more than most other house just a silly thing to do when thinking about resale further on down the track?

1) As Rolf says, if it "values up", then you have little to be concerned about.

2) I think if it's your PPOR you should build what you're happy living in - within reason. The longer you plan on living there, the more I believe this is true.

3) Whilst no one "luxury item" is said to pay off in terms of valuation - e.g. spending $3K more on higher quality taps is said not to add $3K - my perception is that 10 x $3K luxuries can easily add up to make your house stand out as being better quality than average, and that can easily add $30K to what people are willing to pay. Does that make sense?

If you're more excited about the $40K-more house, and you can afford it, then build it.
Is 50K more than most other house just a silly thing to do when thinking about resale further on down the track?
I don't think so. Another perspective: that's 10% in today dollars.

If you could travel back 20 years and build an OK house for $180K, or a great house for $200K, do you think that today you'd be wishing you'd gone for the $180K house?