If you are in the market for a new home, you may have come across the term ‘house and land package’ or ‘home and land package’. Often touted as an ‘all-in-one’ solution for buying a home, this option has both benefits and drawbacks.
What is a house and land package?
Buying a house and land package involves purchasing land and a newly-built home together, using a builder or builders chosen by the property developer, and usually with some restrictions around the style of home you can build. You will sign two contracts, one for the developer and one for the builder who will be constructing your home.
As the buyer you can either purchase the land, then choose a builder to build your home, or you can buy a ‘turnkey package’ which is a completely finished property, ready for occupancy.
A standard house and land package (where you buy the land first) allows for more choice in the style of house, although typically you are still limited in your choice of builder and design.
How do I buy a house and land package?
If you have chosen a turnkey package, you will purchase a lot through the land developer and select a home design from their chosen builder.
Each house and land package differs in its inclusions, so do your research to find out exactly what is included in your contract – will you have to pay more for anything not considered a ‘standard inclusion’?
Standard inclusions are things such as fully fitted kitchen and bathroom, wardrobes, data points and tiling for bathrooms and kitchens.
The price of a package can balloon with ‘extras’ such as carpets, upgrades to fixtures and fittings, landscaping and features such as driveways and fencing which are automatically included when you buy an established home.
Be sure to clarify with your builder what these ‘extras’ will cost, as well as the price of changes to the home design.
How do I pay?
This will depend on what kind of package you choose.
For a turnkey package, the complete cost of the land and house construction will be packaged and sold as one price. In this instance, you will apply for a mortgage in the usual way, with a deposit of 20% required to avoid LMI.
For a standard package where you first buy the land, then build on it, finance works in two separate components.
First you take out a land loan to secure the vacant block of land, then a construction loan for the home itself. This is different to a regular home loan. Certain amounts of your loan are made available for you to ‘draw down’ at agreed times, to align with the progress of the build of your home.
In this situation, lenders typically charge interest-only repayments until construction is complete.
Is the builder legit?
Do your own research and due diligence before signing a contract with the chosen builder for the construction of your home. If you have any doubts about the legitimacy of the builder or their solvency, don’t go ahead.
You should also consider paying for a contract review service to make sure you fully understand the contract before you sign anything.
Your solicitor should also check the contract to make sure it complies with all statutory and legal requirements.
As with the purchase of any home, you will need to pay stamp duty, conveyancing fees, the fee for a pre-purchase building and pest inspection, and, potentially, LMI (lender’s mortgage insurance) if you are borrowing more than 80 per cent of the home’s value.
The cost of utility connections, council rates and fees, and ongoing repairs and maintenance also fall to you as the new owner.
Pros and Cons
As with any method of buying a home, there are pros and cons to buying a house and land package:
A one-stop-shop solution.
You may have just one contact who take care of everything for you, and with a turnkey package, you don’t need to find your own builder or choose between a myriad of house designs.
Stamp duty savings.
If you go the ‘buy the land, build later’ route, you will only pay stamp duty on the value of the vacant land. If you are buying an ‘all-in-one’ package, you will still be eligible for significant reductions in stamp duty.
In a new home that is not your primary place of residence (i.e. you have built it as an investment), tax deductions can be claimed for depreciable assets such as the construction of the house itself, as well as fixtures and fittings. You also have the tax benefits of negative gearing. There are a number of tax benefits for owners of investment properties.
Community and convenience.
Many house and land developments are designed to be self-contained hubs with parks, cafes, shops and medical and childcare facilities. This can be a convenient lifestyle and can build a sense of community for residents who move in at the same time and watch the development grow together.
You may need to live further out.
It takes a lot of land to establish a new housing development, and big tracts of land are typically on the outskirts of a city. This can mean less access to transport, infrastructure and cultural and entertainment activities.
Less individuality in the look of your home.
You may end up with a home that looks very similar to others in your street – this is not a problem for some people, but if you place of lot of importance on having a one-of-a-kind home, then this option is not for you.
Capital growth concerns
If you are buying in an area where a large number of housing developments are planned, there is a risk that oversupply will impact the growth in value of your home. Do your research to ensure you are not paying too much for the convenience of an all-in-one option, and find out the plans for growth in your chosen area.
Look for things that will increase value such as plans for public transport, road improvements, medical facilities, schools, shopping hubs and other infrastructure that will attract buyers to the area.
Although the price of a house and land package may seem attractive, your budget can blow out with the cost of ‘non-standard’ inclusions, changes to the design of your home, fences, landscaping and driveways.
How can we help?
Need to know the ins and outs of your contract? Book a contract review with The Home Inspection Hub so you can proceed with confidence.
We can also arrange all necessary new home construction inspections, to make sure your home is being built to the agreed standard. If you book four or more inspections as a package, discounts apply. We also offer stand-alone PCI inspections and maintenance inspections.
Are you planning to rent out your new home? Let us help you maximise your investment with a tax depreciation schedule. With the end of the financial year approaching, now is the time to get this organised. The cost of a tax depreciation schedule is a tax-deductible expense.