Is there anything wrong with new house and land packages?

You might have heard some "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 buyer experience? What are the facts and myths that buyers need to know?

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 facts twisted to suit someone's sales agenda. Some of these stories can even be considered malicious. Most of the time, it is just a case of monkey-see-monkey-do. Someone have copied the story from somewhere, hidden some facts, sensationalised it and repeated it, without further disclosures.

House and Land Package vs Established House with Land

The first thing every buyer must know, is the difference between a new House and Land package and an established house. These two are same, but different. You will eventually buy and own a house with a land, but the process is different. Each has their own "ideal buyer" with different needs. Property 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 is put together to answer home buyers questions and aims to give property buyers 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 loan to build the house.

But not all house and land packages are set up the same way. There are some variations with House and Land Packages from different developers or builders. Here are some common ways a house and land package is put together:

1. Some developers, estates and contracts may force you to 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.

2. Some developers may want you to build only with 1 particular builder.

3. 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.

What is a Established House with Land?

In contrast, an established house with 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 problem 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 or home buyers with limited savings. This will usually be their entry into the real estate investment journey. Their golden ticket into property ownership or property investment.

It is unfortunate that many buyers had been convinced by smooth-talking marketers and sales agents into buying unsuitable house and land packages, without considering their needs. Afterall, it is often, not in the real estate selling agents' / marketers' interest to understand what you need. As sales agents, they are, in fact, legally required to look after the interest of the seller and developer, not the buyer. They are legally required to look after whoever pays them. And, in this case, since you are not paying for their services, they are looking after the developer. They will sell you whatever they have. Not what suits you. This article will explain in more details this legal requirement.

The issue with House and Land Package is the sales process

And this has unfortunately created a bad reputation for House and Land Packages. These sales agents are looking after the interests of the seller, not the buyer. They will sell you what they have. Sales agents are skilled at making you believe what they have is right for you, without understanding in-depth, what you want. If you are not paying for their services, they are selling what they have to you, not what you need. By buying direct from a sales agent or marketer, you will likely find yourself buying the wrong house and land package. There usually is a better property somewhere else, and they are not recommending that to you because they are not paid to do that.

A house and land package might not even suite you at all. Selling a new house and land package to someone buying an established house is like selling IKEA flat-pack 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:

1. Lower entry cost. House and land packages are typically built in new estates, with lower land costs.

2. 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 it has a much lower stamp duty on the transfer.

3. Brand New House. This is quite obvious. You get to enjoy a brand new house with modern 7 Star Energy efficiency rating. And you can even get to customise the layout and design of the house to 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 a few things you need to consider.

1. 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. You will usually need to wait a few months, to a year or 2 before the land is titled. Then, it is another about 6 to 9 months for the build and a further 3 to 6 months for the admin and permits. There are some builders who can build in shorter time frame, and we have tested and confirmed 4 months is consistently achievable, by good scheduling of work. Ask us for me info.

2. 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.

3. 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, road works, unpredictable public transport (if any) for a while. But, as the estate matures over the years, the inconvenience will disappear and services will improve. Have a look at matured estates around Melbourne. We've yet to see one with bad traffic and transport. The best thing with a maturing estate? Price Growth! Your equity in the 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.

4. You don't know the developer and builder. This is probably the biggest problem most buyers 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. 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 construction is often outsourced to the cheapest contractor / tradesmen who can do the job. A smaller builder, on the other hand, could have better quality as they can supervise their contractors closely.

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 around $20,000. And the selling agents usually pay for the marketing of these house and land properties, not the developer.

Some "experts" may claim that you are paying the agents' commission when you buy one from them. But here are the facts. When you consider the typical house and land package in Melbourne costs around $700,000, a commission of $20,000 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 seller 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. Ie, you're paying $40,000-50,000 in commissions and advertisements to the sales agent's marketing process.

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, if not more than the commission for a new House and Land package...

So... what is the truth? Are you actually paying more in commission when you buy a House and Land Package? 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. "Guaranteed 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 selling them the wrong product. 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 and social 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. Most of our recent House and Land purchases are worth between $20,000-50,000more than what our clients paid for, by the time the houses are built.

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:

1. Find out about the developer.

2. Find out about the builder.

3. Inspect some of their finished products. It is usually representative of what you will be getting.

4. 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 the builders and 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. But the site should give you an idea of what's available.

Get in touch with us via Whatsapp or email to find out what's available and suitable for you.

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. Thus, when we inboard a new client, we go through an detailed workshop and brainstorming session to determine if house and land packages is right for you.

But if you must know, in general, the answer is:

Yes, if:

1. You have limited funds.

2. You want to get your own home.

3. You do not mind living in a new estate for a few years.

4. You are not worried with yield and short term growth.

No, if:

1. 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.

2. You expect instant growth.

3. If you are expecting it to be a positive cash flow property. In the right area, it may still be positively geared.

4. 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.

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