For some people, purchasing a house and land package can be much more convenient than buying the land separately.
In this article, we look at what a house and land package is and how to finance one, as well as what some of the benefits and drawbacks of these packages are.
- What is a house and land package?
- Finance for a house and land package
- What to consider
- Steps to buying a house and land package
- Is it better to buy land and build?
- Benefits of a house and land package
- Negatives of a house and land package
Looking to compare low-rate, variable home loans? Below are a handful of low-rate loans in the market.
Smart Booster Home Loan
- Discount variable for 2 years <=70% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,448
- Discount variable for 2 years <=70% LVR
- No ongoing fees
- Unlimited redraw facility
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 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.
What is a house and land package?
Property developers often purchase large blocks of land and then offer parts of this land for sale, which they’ll then build houses on, as part of a package. This is 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 be moved into, with no further work required. It quite literally means you can turn the key in the door 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, with more customisation of the home allowed 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’ll be different ways in which you can finance it.
The full cost of land and the building of the house is typically set at a fixed price from the outset 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 construction loan. A construction loan is a special type of loan specifically for building a home which 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.
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 anything commencing. 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 house and land package. Also research potential locations of your home to see if they have the amenities you’ll need, like schools, public transport, shops, and hospitals.
You should also do research on 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 normal 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. 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. 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 how your new home is going to look, as you’ve chosen the design and any features you wanted it to come with. However this doesn’t mean things may 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 wanted. This way, you may stop mistakes from happening which will be expensive to rectify, or can’t 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 begin 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 came 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:
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.”
Mr Glasscott said people valued the certainty of fixed pricing which meant there were 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.”
Mr Glasscott said house and land package 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 a number of negatives that can come with house and land packages which may include:
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 in these regions. 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.
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.”
With developers trying to get the best 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 at this time, you might not make a profit or find many buyers.
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 take all of 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.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
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.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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