Guide and tips for buying house and land packages

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on December 23, 2021
Guide and tips for buying house and land packages

For some people, purchasing a house and land package can be much more convenient than buying the land separately.

Owning a brand new home is an aspiration many people share; people that are ready and keen to live out the classic Australian dream. But the thought of designing a house and having it built can be daunting at best. Enter house and land packages - where you can buy a brand new home without the hassle of doing all the legwork of building it from scratch. 

But what exactly is a house and land package, and how do you finance one? There are benefits, of course, but what are the drawbacks of going down this road to own a home?

In this article, we'll discuss:


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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of May 29, 2022. View disclaimer.


What is a house and land package?

Property developers will often purchase large blocks of land and offer parts of this land for sale. They’ll then build houses on as part of a package called a house and land package.

There are two types of house and land packages:

  • Turnkey packages
  • Standard house and land packages

Turnkey packages offer a property that is completely ready to move into with no further work required. It quite literally means you can turn the key in the door (hence the name) and start living there.

With a standard house and land package, you’ll first buy the land and build on it at a later date. Going down this route allows you to make more customisations to the home compared to a turnkey package.

In both cases, the builder and developer will work together at all stages of the construction of the home with no conflict of interest.

This can be a more simplified process compared to buying a parcel of land from a developer and then having to find a builder yourself.


Finance for a house and land package

Depending on the type of house and land package you purchase, there will be different ways you can finance it.

The full cost of land and the building of the house is typically set at a fixed price from the get go for a turnkey package. As a result, finance for turnkey packages works just as a normal home loan would, with a 20% deposit required to avoid Lenders Mortgage Insurance (LMI). If you’re willing to pay for LMI, some lenders will be happy to lend to you if you have a deposit as small as 5%.

Standard house and land package financing can work quite differently and have two separate components (which may be bundled with the one lender). You’ll first have to finance your vacant block of land using a land loan. The deposit required for this will be dependent on the size of the land and the lender but again, you’ll typically need at least a 20% deposit to avoid LMI.

The second component is a loan for the home, which will require a separate construction loan. A construction loan is a special type of loan specifically for building a home, and it functions quite differently to a normal home loan. Lenders typically charge interest-only repayments for the duration of the build and your repayments are calculated based on how far along your build is.

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    Offset Package Home Loan (Principal and Interest) (LVR 60%-70%)

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      Yard Investment Loan (Principal and Interest) (LVR < 80%)

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        Basic Home Loan (Principal and Interest) (LVR 70%-80%)

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            Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of May 29, 2022. View disclaimer.

            Related:

            First home buyer finance

            If you're a first home buyer, you may have access to some of the government grants and incentives available to you. Some of these may include:

            • First Home Owner Grant
            • New Home Guarantee
            • First Home Loan Deposit Scheme
            • First Home Super Saver Scheme

            The New Home Guarantee and First Home Loan Deposit Scheme may allow you to purchase your brand new home with as little as a 5% deposit while avoiding LMI.

            On the other hand, the First Home Owner Grant could see you receive a one-off lump sum payment to go towards the cost of buying your home - how much you receive depends on which state you're buying in.

            Additionally, the First Home Super Saver Scheme allows you to make concessional contributions to your superfund for the specific purpose of saving for a home. This can help you save money faster as your money can be taxed at a lower rate.

            Do your research and find out which government financial assistance you may be eligible for. You could use one or multiple incentives listed above and, by doing so, you could end up saving yourself thousands of dollars on the cost of your new home.


            What to consider prior to buying a house and land package

            Natalie Stevens, founder of Build In Oz and creator of the Building Home Masterclass Series, told Savings.com.au the most important thing to consider before buying a house and land package was the price and what it includes.

            “Often packages are advertised for the bare minimum price with minimal inclusions,” Ms Stevens said.  

            “It’s important that people realise that often packages are in fact a promotional tool when in most cases you can actually purchase the block separate and build a home on that land using any builder you choose.  

            “In some cases, particularly in metropolitan areas, builders may have purchased the blocks and are on-selling as a house and land package. In this case, it is a genuine package and to purchase the block you must build the house advertised within the package.”

            Ms Stevens said it was vital people went into the planning process knowing how they wanted their home to look.

            “Prior to making a decision to purchase a house and land package you should consider whether or not you’ll want to make changes to the floorplan as that may not be possible or making changes could come at great expense,” she said.


            Guide to buying a house and land package

            One of the biggest benefits of buying a house and land package is the convenience it provides. However, there are still a number of steps you could go through to boost your chances of a successful build.

            Step 1: Research

            Arguably the most important step of buying a house and land package is the research you do prior to signing any dotted lines. You should have a solid understanding of the type of home you’re after, the size of the land you’d like, and any customisable features you’d like in your home. This could help you make a decision on whether you want a turnkey package or a standard house and land package. You should also research potential locations of your home to see if they have the amenities you’ll need nearby, such as schools, public transport, shops, and hospitals.

            You should also research the potential developers and their builders. Shop around for the best price and look at previous builds they’ve completed to get an idea of how your home could look.

            Step 2: Approach a developer

            Once you’ve done your research, you can approach a developer and see whether they might be right for you. Carefully look at their costs, the approximated build time, and any hidden costs in the contract. You may want to get a financial adviser to look over any documents to help you avoid any nasty surprises.

            Step 3: Organise your finance

            Depending on whether you purchase a turnkey package or a standard house and land package, you’ll need either a home loan or a land loan and construction loan. You can organise this after getting your quote from your builder so you know how much you’ll need to borrow.

            Alternatively, you could go to a lender and get pre-approval to know how much you’ll be able to borrow, which can help you budget a little better. You should shop around between different lenders to help you find a suitable deal.

            Step 4: Monitor the build

            Generally, with a house and land package, you’ll know exactly what your new home is going to look like as you’ve chosen the design and any features you wanted it to come with. However, this doesn’t mean things won't go wrong or be misinterpreted by a builder. You should regularly check your build to not only monitor its progress, but to ensure it’s turning out how you want it to. This way, you can stop mistakes from happening, which could be expensive to rectify or unable to be fixed at all.

            Step 5: Sign off and move in

            Once your build is complete, you’ll be required to sign off on various legal documents before you can move in. Once you’ve got the pesky paperwork out of the way, you’ll be free to grab the keys and start your new life living in your new home.


            Is it better to buy land and build over a house and land package?

            There’s a legitimate debate to be had between buying land and building a home separately versus house and land packages, with multiple benefits and drawbacks for both.

            In short, house and land packages offer a simplified experience, whereas doing it separately allows for customisation and control.

            Ms Stevens said she personally always recommends people purchase land and build separately.

            “Large unnecessary commissions can be hidden within packages given you the false sense of what you’re really paying for your new home,” she said. 

            “The package price could absorb a commission from a real estate agent, a builder and a broker clocking up tens of thousands of dollars that you may have otherwise have had to spend on your home.  

            “Buying land as a separate contract facilitates a more transparent process. Engaging a builder direct also helps to avoid paying unnecessary fees.”

            But Ms Stevens added that the decision ultimately comes down to experience and personal preference, with house and land packages working for many people.

            “Buying a package takes away the stress of having to balance your budget between the cost of the land and the house. It all depends on your personal circumstances and how much time you wish to invest in your project.  

            “An experienced home building client will know what to look out for whereas a first time home builder could find themselves blowing their budget in unexpected costs following the completion of the project.”

            Related: Cost of building a home in Australia


            Benefits of a house and land package

            Metricon’s Victorian Sales Manager Drew Glascott told Savings.com.au there were many key benefits to buying a house and land package.

            Convenience

            Mr Glasscott said ease of purchase ranked as the number one reason people came to Metricon for house and land packages.

            “By purchasing your home and land together, you’re streamlining the build process and reducing the risks and stresses that can come with buying land,” Mr Glasscott said.

            “An experienced builder is going to know very quickly what block attributes are best suited to the home you’re after – things like its fall, fill, soil conditions and landscaping potential.

            “Assessing land for suitability can feel overwhelming, and it’s easy to make errors of judgement if you haven’t done thorough research.”

            Fixed pricing

            Mr Glasscott said people value the certainty of fixed pricing, which means there's no surprises at any point in the build.

            “People know quickly what their total financial commitment is so they can plan and save without being hit with unexpected costs.

            “Nothing can derail a new home project faster than burning up money on unanticipated costs.”

            Speed

            Mr Glasscott said house and land packages were great for people who wanted to kickstart their build as quickly as possible.

            “Conversely, if saving your deposit is not an issue and you want to get going on your build quickly, a house and land package might be the way to go.

            “We can issue the building contract faster – usually within a two-week window. This is an attractive proposition for people who want to be in their new home as quickly as possible.”

            Extra time to save while land titles

            “Some customers come to us wanting to kick off their new home purchase but need extra time to save their deposit,” Mr Glasscott said.

            “If we know this and they’re seeking a house and land package, we can help them select a block on an estate where land has a lengthier window to title - this is particularly helpful for first home buyers.”


            Negatives of a house and land package

            There are also a number of potential negatives that can come with house and land packages.

            Location

            It's unlikely you’ll find a house and land package in close proximity to a metropolitan area, simply because there isn’t enough land available. Developers buy land in areas where there’s lots of it, which is either usually further away from a city or in a newly developed area. As a result, there may be a lack of amenities and infrastructure in the area.

            Hidden fees

            Ms Stevens said hidden costs are what every house and land package buyers needs to look for.

            “They are costs that you don’t realise exist until after you’ve already signed a contract to buy,” she said.  

            “For example, it’s common for people to sign a contract to purchase a house and land package without realising that it doesn’t include a double driveway for their double garage.  

            “Often there’s no allowance in packages for outdoor paths or concrete beneath the alfresco area.  Buying a package makes it easier to overlook things.”

            Lot size

            With developers trying to get bang for their buck, lot sizes for house and land packages are often smaller than buying land separately. This may mean your house will be smaller than you envisioned or you may not have the backyard you want.

            Lower yield and capital growth

            As house and land packages are often situated in the outer rings of a city, or in an area with little infrastructure, the growth in the value of your property will be minimal - in the short term at least. If you wanted to sell your home within a few years of moving in, you might not make a profit or find many buyers looking to nab the property.


            Savings.com.au’s two cents

            It’s important to go into a house and land package knowing what you’re buying.

            While buying land and building separately offers you a great degree of customisation and control, house and land packages can take the stress out of the process.

            They can be a great way for those inexperienced with property to build a home, while still offering some sort of say in the process.

            Watch out for any hidden costs and weigh up the pros and cons before entering into any contracts.

            Article originally published by Alex Brewster on 11 September 2020, updated by Rachel Horan on 23 December 2021


            Image Source: Twitter 

            Disclaimers

            The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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            author-avatar
            Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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