If you’ve ever looked into purchasing a new property, you’ve no doubt heard of the term’ house and land package’. In this blog, you will know what they are and how they work to guide your decision process.
What is a House and Land Package?
A house and land package refers to where a client purchases a block of land and home construction in one process but over two contracts. One contract is for the purchase of the land and a building contract for the dwelling’s construction.
The land contract will be with the land vendor, and the building contract will be with a building company. It is possible in some instances that the developer of the land is also a builder.
House and Land Packages are generally on two contracts, as mentioned above. In some circumstances, they may be on a single contract from one entity. This is often seen for a Self Managed Superannuation Fund (SMSF), where SMSF borrowing legislation requires a single-contract to be used.
Simple Guide to SMSF Property Investment
House and Land Packages offer a clear outline of the costs associated with building on a specific block of land and can also be a cost-effective way of simplifying the process of home design.
One of the great benefits of purchasing a house and land package instead of an established or single contract home is that there is reduced stamp duty. stamp duty in Queensland is calculated on the land component only and not on the build component.
Build Contracts
It’s important to know if the builder is using an industry-standard build contract. Examples of such are the Housing Industry Association (HIA) and Master Builders Contracts. You should have an experienced law expert who knows these contracts well to go over the contact on your behalf.
Fixed Priced Build Contract
When you’re looking for a house and land package, you must insist on the builder provides you with a fixed price contract. This means that the builder must honour the contract price and cannot come back to you for further costs. It would be best if you had an expert go over the fine print to ensure that there are no clauses that the builder can come back to you with for further funds. Is there a rock clause in the contract? This allows the builder to come back for further funds in situations where rock is encountered. It is essential to know this, as these incidences can add substantial costs to your overall building cost.
There are different types of build contracts in each State in Australia. Not all of the fixed priced contracts are fixed price. So make sure you have your legal expert go over it for you very carefully.
Turn-Key Build Contracts
Turnkey means that the building contract has everything. The dwelling is ready to occupy from the day that it is handed over to the purchaser; this is very important for investors and interstate purchasers.
Turnkey inclusions mean that the dwelling has everything included inside that the property will need. Floor Coverings, screens, blinds or curtains, air-con, appliances etc. All of the fittings and fixtures required for someone to move in.
Externally all of the lawn, gardens, driveways, letterboxes, clotheslines need to be included. Also, the packages must have the appropriate site works and foundations as part of the contract.
House and Land Package Inclusions
As mentioned above, you must ensure the level of inclusions is appropriate for your purposes. If you live in the property, you will probably want to personalise the inclusions to your style or wants. However, if the property is for an investment, your decision should be based on what will attract the best rental yield and future Capital Growth. Investment properties should be rent ready from the settlement as any delays in getting properties ready to rent can be very costly to the investor.
Builder Selection
When you choose a builder, the builder must have had experience building the property type you are looking to build. It is always a good idea to go through some similar properties to the one that you are looking to purchase. Going through properties that are ready to hand over is a valuable exercise. It’s vital that you go through something similar to what you are looking to purchase. Going through display homes will often not be a perfect comparison to what you will get, as the builders tend to put lots of extras and upgrades that you may not be getting in your contract.
Have they built this type of property before?
If you are building something that is not a standard house design, it is good to make sure that the builder has experience in this type of build. This is particularly relevant for House and Land Packages that are dual occupancy/auxiliary, duplexes, Granny Flats, or large one-off type designs.
You need to ensure that you undertake adequate due diligence for the builder you are looking to engage.
Builders need to be competitive on price, offer a competitive, contractually-guaranteed build timeframe with sufficient liquidated damages clauses in their contract. The liquidated damages clause is the amount that the builder will pay you for each day that they are over the specified build time outlined in the contract. Having a high liquidated damages clause ensures the builder is motivated to build in a timely fashion, and if they are over the period, you will be adequately compensated.
You should ensure that the builder is licenced by undertaking a builders licence check. There are different websites that you can use for your local license check and Queensland builder license check.
Each State and Territory has its own Building Authority that you can use to check your potential builder’s licences. You want to make sure that the builder holds the appropriate licence and doesn’t have any unsettled disputes or work that needs to be rectified. It is important that the builder has applicable insurance and a governing body to take over the building process if the builder is unable to complete the process for any reason.
The builder must check all of the relevant information on the block of land, including the local council rules and the estate specific rules and covenants. When builders cannot obtain Building Approval for the design you want, you will generally have to redesign or re-package, which can add time and cost to your project.
House and Land Package Prices
As outlined previously, not all House and Land Packages advertised are for a turnkey build, and nor are they fixed price. There are numerous builders and developers that advertise from-prices. This means that they have an incomplete home and advertise a package at a price. This unscrupulous tactic is used to try and draw potential buyers and makes it difficult to compare prices.
Many people try to compare the prices of builders across different blocks of land and building designs. Many factors affect build price that may be tedious work to someone inexperienced with property development.
Each block has a different set of constraints and site nuances that need to be factored in. The discussion of pricing of other builds is so vast that it warrants a blog article of its own. In short, the only correct way to compare the pricing of two builders is to have them provide a fixed price contract for the same house design, on the same block, with the same inclusions and build time frame. Now, this is easier said than done for many individual property purchasers. To enable us to know that we are providing our clients with a fair price, we have our design team come up with designs for bocks, and we then have our approved panel of builders offer fixed-price quotes for the build. We are then able to assess the different builds prices for our clients accurately.
House and Land Package Build Times
As touched on previously, the building contract will stipulate a maximum build time before damages are paid to the purchaser. The time it takes to build a home will depend on many factors, but generally, the build’s complexity is a crucial consideration. A smaller single level home is usually quicker to build than a larger two-storey home. Project builders that are experienced and doing volume builds will often build single-level homes on flat blocks in 12-16 weeks. Whilst they may often build them quicker, they will generally allow for longer in the contract. External factors such as how busy the associated trades are will affect build times. As the trades get more active in a busy market, it is harder for builders to get buildings completed quickly.
Before a builder can commence construction, the land must be registered, and they must have Building Approval (BA) in place.
Land Registration
When you are looking for a home and land package, you must know the difference between registered and unregistered land.
Registration is the system in Australia that is used to validate the ownership of a piece of land. It ensures that evidence of title is provided and prevents unlawful disposal. Registration of land is compulsory by law in Australia.
Once all of the appropriate steps have been completed when land is being developed, the final process is for the block to receive registration.
When a block of land is registered, it has a title. This means that a purchaser can purchase and settle the block of land, and once building approval is received, they can commence construction on it.
Building cannon start on an unregistered block of land. You should factor this into your house and land package timeframes. Blocks that are under development can take considerable time to get registered. Whilst developers will attempt to make accurate predictions as to when they believe a block will register, it is out of their hands, and timeframes can blow-out significantly.
It is a big advantage to purchase a registered block of land as you aren’t at the mercy of external factors that are out of your control. When the market is busy, you may not be able to secure registered land. In this instance, you must be aware of potential delays and factor this into your plans.
Finding A House and Land Package
We are consistently putting together House and Land Packages for our client in high growth areas across Australia. If you are interested in exploring house and land options, please feel free to send through an enquiry, and one of our experienced new property consultants can guide you through the process.
