How house and land packages work

• Compare house and land packages with traditional building methods or purchasing an established home.
• Learn about financing a house and land package.
• Step-by-step package process with house and land package pros and cons.

There’s nothing quite like turning the key and walking into your brand new home, with features you’ve chosen to suit your lifestyle, gleaming surfaces and new fittings that no one has used before you. One of the most popular ways to achieve this is to purchase a house and land package.

What is a house and land package?

Instead of buying a parcel of vacant land and then looking for a custom-built home design and a builder to create your home, you can opt for a house and land package. House and land packages are typically offered in new housing estates created by property developers.

In some cases the home may be already built, or will be built by the developer, so that you buy the new house and the land from the developer in a single contract. There may be various home designs to choose from (sometimes with display homes to guide you), with customisable features to suit your needs and budget.

An alternative scenario involves buying the land from the developer and then purchasing the home separately from a builder. In this case there will be two contracts – one for the land purchase and one for the building purchase – but it’s still considered a package deal.

Who house and land packages appeal to

The market for house and land packages is quite varied. It’s essentially anyone who wants a new home, for whatever reason. It may be a first home buyer with a limited budget, opting for an affordable new housing estate on a city’s fringes. But such packages may also appeal to growing families on their second or third house, looking for more living space and more bedrooms. Empty-nest downsizers or retirees looking at new retirement villages are also an active part of the market, as are sea and tree-changers seeking a better lifestyle, and investors wanting a reasonably-priced house that will appeal to renters with families.

House and land package timing vs traditional purchase or building methods

The fastest way to acquire a house is to buy an established home. Once you have found a property you can afford, agreed a price and exchanged contracts, you can usually move in within as little as six weeks.

The slowest way is to buy a piece of vacant land, possibly wait to have services connected, research home designs or employ an architect, find a builder, agree a price, and then wait until the build has been completed. Even then, you will probably still be faced with fencing and landscaping your garden. The whole process can take a couple of years, or longer.

Compare this with house and land packages. If you’re buying a package where your home is yet to be built, you’re typically looking at four to five months, provided you don’t ask for any variations after contract have been exchanged. This is much faster than a custom-built home, which can often take 10-12 months to build, since package builders can take advantage of time savings as a result of having several homes in progress at the same location.

House and land package prices vs traditional purchase or building methods

The land component of a house and land package may often be lower in price, since new housing estates are most often located in outer suburban or regional areas where land is cheaper. And the building cost of package homes or project homes is often less as a result of economies of scale for the builder.

As a result, a newly-built home usually costs less to buy than the equivalent established home. The time lag between placing a deposit on the land, completing the land purchase and then making building progress payments using a construction loan (see below) also gives you a bit of time to sort out your finances rather than coming up with the full amount upfront. And in the short term, new homes are going to cost less to maintain than homes which have already seen some wear and tear.

Both owner-occupiers and investors therefore haver the potential to make greater capital gains from house and land packages than from buying an established home.

How financing works with a house and land package

There are usually two steps involved in purchasing a house and land package – buying the land and then building the house. This means that there may be two contracts and two loans involved, although the loans may be bundled together by your lender.

The loan for the purchase of the land is a standard home loan. But the loan for buying the house is likely to be a construction loan. This latter type of loan involves making progress payments to the builder as different stages of the construction are completed, so that you only pay interest on the progressive amounts you have drawn down rather than taking out the entire loan amount at the beginning.

Lenders are familiar with the concept of house and land packages, so getting a loan should be no more difficult than getting a loan to buy an established home, and easier than two separate loans to buy a vacant land parcel and then erect a custom-built home.

How much deposit you’ll need for a house and land package

The deposit rules are similar to those which apply to any home loan. Lenders will be looking for a 20% deposit if you want to avoid paying lenders mortgage insurance, unless you have a loan guarantor. The deposit amount is calculated as a percentage of the estimated value of the house and land once the build is completed.

Step-by-step process of a house and land package

1. Research property developers to find one developing land in an area that suits you.
2. If possible, contact people who have bought house and land packages from the same developer, to gauge their level of satisfaction and ask for tips on what to watch for.
3. Once you have settled on a developer and location, inspect display homes on the estate, if available.
4. Seek pre-approval of your home loan.
5. Select a home design and any variable features or additions. (This will usually limit you to a particular builder offering that design, so research the builder’s reputation as well.)
6. Choose a parcel of land on the estate.
7. Make sure you know exactly what is, and is not, included in the deal (e.g. driveway, fencing, light fittings, built-in dishwasher, floor coverings, landscaping), the final price and how long the build is expected to take.
8. Organise final approval of your home loan.
9. Exchange contracts with the developer, or both the developer and builder, after having contracts checked by a solicitor.
10. Inspect your home regularly during the construction phase to watch out for any problems.
11. Release progress payments via your lender as the construction proceeds, when you are satisfied that each stage has been completed.
12. Conduct a detailed inspection of the finished project before releasing the final payment.
13. Move in.

Pros and cons

FAQs

Are house and land packages a good investment?

They can be a good investment because they are often cheaper to buy than a similar established home. This means that once the building has been finished and all the extras (landscaping, drive, fencing, flyscreens, shutters, clothes hoist) provided, the investor has the equivalent of an established home but at a lower cost. A new build is also likely to have lower maintenance costs during the first few years of ownership.

The downside for the investor is the waiting period, with capital outlays but no rental, during the construction phase.

Are house and land packages negotiable?

They are negotiable to the extent that the price may vary according to the size and position of the parcel of land you choose, and the quality of customisable features (such as built-in appliances, kitchen and bathroom fittings, floor coverings) you select.

But there’s also nothing to stop you trying to negotiate the prices down, both for the land from the developer and for the construction from the builder. The builder may offer you some free extras – such as fitting or appliance upgrades – rather than a discount.

Your likelihood of success will depend largely on the state of the market. That is, if there is high demand for the packages the developer and builders may decline to negotiate, but if the market is slow they may offer discounts, especially on the last few available packages.

Are house and land packages more suitable for first-time buyers?

Not necessarily, since there are estates designed to appeal to cashed-up expanding families, downsizers and retirees, as well as newcomers to the property market. But they are definitely suitable for first-timers because there will often be low budget land parcels and home designs available.

First time buyers can also benefit from First Home Owner Grants which are often more favourable or easier to obtain for newly-constructed homes.

Verdict

House and land packages are often less expensive than buying an established home and can be a good way to get a foot on the property ladder, or achieve your dream home by choosing a design and fittings that suit your needs perfectly. As long as you choose the developer, builder, design and location carefully and are prepared to wait for construction to be completed, you are likely to achieve a good result.