Updated: May 8
You might have heard some so-called "experts" claiming house and land packages are to be avoided. And you might have also heard how buyers who had bought one had NEVER regretted their decisions. Same product, two very different opinions. Is there any truth to any of these 2 very different stories? What are the facts and myths?
As independent Buyers Advocates in Melbourne, we constantly have clients coming to us with mis-informed preconceptions about new house and land packages. While there are some truths, under specific conditions, most are just misinformed or twisted facts. And some of these stories can even be malicious. Someone might have copied the story, hide some facts, sensationalised it and repeated it, without further disclosures.
The first thing everyone need to know, is the difference between a new House and Land package and an established house. These two are same, but different. They are meant for different buyers with totally different needs. Buyers should always buy these properties with their eyes opened and arm themselves with the right information.
Our buyer focused real estate buyers agents have been helping our property buying clients buy the property they want, fast and confidently, and we protect their buying interests throughout the whole process. This article aims to give our readers some fact based reasons why a new house and land home can be a viable option for them.
What is a House and Land Package?
First, let us discuss what types of properties are typically considered a house and land package.
A "House and Land Package" is simply a house with a land. It is very similar to an established house on a land. The difference is, with a House and Land Package, you typically buy a land, then you engage a builder to build a house on it. It is usually a 2 part contract. One purchase contract for purchase of the land, and a separate build contract to build the house. You will also need two different mortgages or loans. One mortgage for the land, and a second one to build the house.
There are some variations with these House and Land Packages though:
Some developers, estates and contracts may mandate that you build with one of their approved builders who have a selection of curated designs, to help keep a certain "look and feel" within the estate.
Some developers may want you to build only with 1 particular builder.
Some developers let you decide who you want to build with.
These conditions will usually be spelt out in the contract. Always read and understand what you sign. Get a good property lawyer who understands the real estate industry to review the contract, if you are unsure.
In contrast, an established house on a land is just that. It is a single purchase of a land that comes with a house already on the land. An established house is sometimes known as a resale home, or second hand home.
What is the issue with House and Land Packages?
There is nothing wrong. It is just a different product for different buyers. Just like any purchase, buyers need to know and understand what they are buying. House and land packages are designed for first home buyers with minimal savings. This will be their entry into the real estate investment journey. Their golden ticket into the property ownership.
It is unfortunate that many buyers had been convinced by marketers and sales agents into buying unsuitable house and land packages, without considering their needs. It is often, not in the selling real estate agent / marketers interest to understand what you need. They, in fact, are legally required to look after the interest of the seller and developer, not you, as the buyer. This article will explain why.
That is the issue. And this has unfortunately create a bad reputation for House and Land Packages. It is like selling IKEA dining sets to a person looking for a ready-built dining set.
Advantages of a House and Land Package
Why should buyers consider a house and land package in Melbourne? As mentioned earlier, House and Land packages are meant for a buyers with different needs. These packages typically offer:
Lower entry cost. House and land packages are typically built in new estates, with lower land costs.
Lower stamp duties. In Victoria, you pay stamp duties based in the value of the land. And with a bare empty land, it is cheaper and thus a much lower stamp duty is levied on the transfer.
Brand New House. This is quite obvious. You get to enjoy a brand new house with modern 7 Star rating. And you might even get to customise the layout and design of the house. It is something you can truly call your own.
Considerations before buying a House and Land Package
Like anything, you should always know and understand what you are buying. And a house and land package is no exception. Here are some things you need to consider.
Comparatively longer lead time. Unlike an established house, where you can take ownership of the house and move in within a couple of months, it could take up to a year (or two) before you move into your new home. It takes about 6 to 9 months for the build and another 3 to 6 months for the admin and permits.
You're committing to something you cannot see and feel. Unlike an established house where you can actually walk in, look, see and feel what the house is, you won't be able to see the house for another a year or 2. What this means is, the fit, finish and quality might not be up to your expectations. To avoid this, select who you build with carefully. The internet is full of horror stories. Read them. But do understand that it is human nature to complain about things that had gone wrong. For every complaint you read, there are usually 15-20 things that had gone right.
Most House and Land Packages are in new estates. And most of these new estates are in locations where amenities, shops, schools, transport might not be matured yet. They will be coming, just not now. It may also mean the traffic and public transport will be immature initially, and you will encounter frequent traffic jams, unpredictable public transport (if any) for a while. But, as the estate matures over the years, these services will improve. Have a look at all matured estates around Melbourne. We've yet to see one with bad traffic and transport. The best thing with a maturing estate? Price rise! Your equity in property will grow significantly, much more than other estates, because it is coming from a lower base and the price has a lot more room to grow. Read the phenomenal growth of newer estates such as Clyde and Tarneit.
You don't know the developer and builder. This is probably the biggest problem most buyers will have. Unless you are in the industry and know who are behind the names / brands, most people would not know who the developers are and who will be building their homes. You might think a name is everything, but that is almost certain not always the case. Research who you are dealing with. Ask around. Still, that is no guarantee that your house will be trouble-free. Big brand name retail builders do not personally build your home. The build is almost always outsourced to the cheapest contractor / tradesmen who can do the job.
Myths about House and Land Packages
Now, to the facts and debunking the myths...
1. You are paying the commission when you buy a House and Land package.
Here are the facts. Marketers / agents for house and land packages are usually paid around $20,000 when they sell one house and land package. And yes, some super premium house and land packages or old stocks which no one is buying could be paying higher commissions of around between $40-60k, but these are the minority 2-5% (depending in location). The vast majority are paying the agents only around $20,000. And the agents usually pay for the marketing of these house and land properties, not the seller. Some "experts" may claim that you are paying the agents' commission when you buy one from them. When you consider the typical house and land package in Melbourne costs around $700,000, that is about 2.8% of the property price. That is 2.8% of the selling price that the seller is not receiving from the sale.
Now, let's look at established property. If we compare houses of similar size, an average established house in inner metropolitan Melbourne would easily be sold for $1.5 million. And with selling agent's typical commission of around 2%, that is approx $30,000 worth of commission paid to the agent when you buy an established property. Now, the vendor will also be paying marketing fees, advertisements, staging for the property in addition to the commission paid to the agent. That could add an additional $10,000-20,000 to the selling costs. And that is $40,000-$50,000 of the sale price which the seller is not getting.
Or if we compare a similarly priced $700,000 established property, that attracts a commission of around $14,000, plus marketing, advertisement, staging of $10,000-20,000, a total of $24,000-$34,000 is going into the ads and agent commission. Strangely, this is very similar to the commission for a new House and Land package.
So... what is the truth? Who is actually paid more?
2. House and Land Packages have poor value.
As I've mentioned earlier, house and land packages caters to different buyers. The ideal House and Land buyers are owner occupiers who do not want to lock in too much cash in a home, and they do not mind staying a bit further away from the CBD. They should also not be worried with yield or growth in the short term.
Most of these house and land packages aren't investment products. The location of most of these new house and land packages, makes them more suitable for owner occupiers than investments.
Unfortunately, many buyers had been mislead by sales agents into buying house and land packages as good investment products. "Guranteed rental returns" or "Guaranteed rental yields" are often used to promote these house and land packages as investment products.
Problem starts when investors buy into these house and land packages, expecting a certain yield and growth, after the rental guarantee period, and when similar yields did not materialise, they voice out their grievances by blaming the product, not the agent. And the rest simply copy what was said, sensationalise the story and repeat the story. People likes negativity. It's a fact. The mass media knows it. Which is why we see lots more negative news being sensationalised than positive news. Negativity sells.
What happens if you had bought one? Fret not. Over time, ALL of these house and land houses do grow in value. Have a look in newer places like Tarneit, Clyde, etc. Established houses are being sold at $1,000,000 or more now. They used to cost no more than $500,000 just 5 years ago.
If you are looking for positive cashflow properties, most house and Land packages definitely do not make sense. There are better locations to buy in. If you are after an investment grade house and land package, let us know. We've identified a few which are good investment products.
Four things you should do, when you buy a House and Land Package
With the considerations raised above, you should always take your time to do your research. These 4 pieces of homework will help ensure you know what you are buying:
Find out about the developer.
Find out about the builder.
Inspect some of their finished products. It usually representative of what you will be getting.
Ask tough questions.
Help with buying a House and Land Package
OR you can talk to one of our buyers advocates or buyers agents. We have carefully curated some quality house and land and off-the-plan properties for our home buyers and investors. Our buyers agents are experienced builders. When we select house and land packages and off the plan properties, we always check the quality of their product. We do site visits, talk to their management teams, key site supervisors, etc, to understand and assess their products and processes.
Some examples of these selected packages and sites are here. There are many more which we have yet to list, as they sell fast. There is only a handful of good properties and they turnover very fast. Get in touch with us via Whatsapp or email to find out more.
Conclusion - House and Land Packages
In conclusion, does it make sense to buy a house and land? It depends on why you are buying this property for. It may or may not suit you, and when we accepts a new client, we go through an assessment to determine if house and land packages is right for you.
But if you must know, in general, the answer is:
You have limited funds.
You want to get your own home.
You do not mind living in a new estate for a few years.
You are not worried with yield and short term growth.
You intend to use it as your investment. Unless you can find a house and land package in a mature location. Most of these aren't advertised though. Most of these will be off-market and accessible only through our Melbourne buyers agents.
You expect instant growth.
If you are expecting it to be a positive cash flow property. In the right area, it may still be positively geared.
You are planning to manufacture growth.
If you are still unsure if a house and land is right for you, get in touch with us. Get a free consultation with one of our buyers advocates. We will explain what a house and land is, understand your expectations and advice if it is the right property type for you.