A place to call home is made up of two ingredients: the house that you’ll live in, and the land that it’s built on.
House and land packages are designed to make the process of ticking these two boxes easier. A buyer can secure a block of land and construct their new home in the one process and will be aware of the total price from the outset.
But while house and land packages are one of the simplest ways to enter the property market, they aren’t without their complexities. And the confusion for first time house and land package buyers lies in the fact that you’ll be signing not one, but two separate contracts.
Always seek expert advice
As we’re going to be talking about contracts, we should begin by saying that by no means does this blog constitute expert legal advice. Always use a solicitor or conveyancer when dealing with any property contract.
All contracts are legally binding, and once they are signed, all parties are obliged to follow them to the letter. They are critical for guiding the process and settling any potential disputes, so you need to be sure that you’re on the right side of the argument should any aspect of the agreement be broken.
How house and land packages work
The process of purchasing a house and land package is slightly different from the process of purchasing an existing home or apartment, or building on land you already own. They’re perhaps not the all-in-one purchase that the name implies.
You’ll actually be buying the land from a developer or real estate agent, and then choosing a builder to construct a house. This will result in two separate contracts - one for the land and one for the house.
If you plan to build within two years, as almost all home and land package buyers will, these two contracts are generally bundled together in the same loan.
Land contract vs. building contract
While they’ll be included in the same loan, the land contract and building contract actually work quite differently.
The land bought from the developer/real estate agent is purchased and settled under a typical sale, where you seek finance from a lender, the amount is paid as a lump sum, and you pay your lender back over time. The process is identical to a traditional home loan.
The building contract works somewhat differently.
The cost of building is set in stone, so you’re able to give a set figure to your bank (the loan amount will be based on the lower of the bank’s ‘on-completion value,’ and the cost stipulated in the building contract), but the builder isn’t paid in one lump sum. They are instead paid in installments as the construction progresses.
Turnkey packages and vacant land
Turnkey packages are the exception to this dual contract system. This is where the developer buys land, builds a home, completely fits it out, and sells everything together on the one contract. This situation is exceedingly rare, however.
A final option is available if you plan to leave your land vacant for a period of two or more years before you build. In this case, you can apply for a vacant land loan with one lender and a construction loan with another.
The house and land package loan process
How exactly does the process of securing a house and land package play out? Let’s take a look.
- Find a package that’s right for you: The first step is to find the best deal. Carefully compare your options before making a decision.
- Seek finance: The price of your house and land package should be set in stone from the outset, which will make it easier to secure finance. You should speak to a lender or broker as soon as you decide to buy a house and land package, as they’ll be able to advise you on the right type of loan, and all the intricacies of it. Depending on your circumstances, the minimum deposit required could be as low as 5% or as high as 20%.
- Pay for the land: Your bank releases the funds for the land component of the loan.
- Pay the building deposit: Initial deposit amounts vary, but generally, it’ll be enough to cover initial materials before construction can start. From time to time, you might see a promotional offer that lowers the deposit. If you’ve provided your lender with all the relevant paperwork, the deposit will usually be covered by your loan.
- Construction starts: Your builder begins work on your home.
- Builders are paid as construction progresses: Progress payments are generally made in six stages: site clearing, foundation, frame, lockup, fit-out/fixing, and completion. The buyer is only obliged to make interest-only payments until the build is finished.
- You’re handed the keys: Once construction is complete, you’re officially a homeowner!
House and land package benefits
Several perks are unique to house and land packages, which make them an excellent proposition for first home buyers, upsizers, downsizers, and investors alike.
- Stamp duty: Only pay stamp duty on the land component of the loan.
- Great value: Patience pays off - when compared to an established property, you’ll generally get more for your money if you choose to build. On top of that, your house will be brand new!
- No hidden costs: You pay the amount stated at the outset.
- Reduced ongoing costs: A brand new house on its own land is a tempting rental option, particularly for families. If you choose to rent out your property, you can expect healthy yields, and you won’t be paying the high maintenance costs of an established property, nor the body corporate fees of an apartment.
While house and land packages are slightly unconventional arrangements, the truth is that the process to secure your new home is quite simple, and can be incredibly cost-effective.
Whether a house and land package is right for you will depend on your particular situation. It’s fair to say that this path to property ownership has already been the best choice for many, and will continue to be the best choice for many more.