First home buyers: is a house and land package right for you?

House and land packages are one way for young Australians to buy their first home, but how do they work, and can you save money with one?

There is something inherently satisfying about watching a house take shape, from the pouring of the foundation, to the raising of the frame, to the addition of all the finished details, as a construction site slowly turns into a home. For first home buyers, a house and land package can be one way to get a foot on the property ladder, and to see your brand new house take shape from the ground up.

As with any major purchase, though, there are a number of potential advantages and disadvantages to take into consideration.

What is a house and land package?

A house and land package is a popular way for first home buyers to enter the real estate market in Australia. It is a bundle that is typically sold by property developers as a two-in-one deal, and the purchase price includes both a vacant block of land, as well as the cost to construct a house on it.

When purchasing one of these packages, an individual will typically choose a block of land, which may be part of a larger tract of land that a developer has purchased and subdivided. They will then pick from a set range of builders and designs to construct the home of their choice.

House and land packages tend to be sold at fixed prices, which can vary in terms of the style and size of the house, and whether it is single or multi-storey. They will typically also have the opportunity to add various extras, such as swimming pools and different kinds of interior fitouts.

How do house and land packages work?

When you purchase an existing house, you will typically take out just one home loan, with a mortgage attached. By contrast, when you purchase a house and land package, you will take out two loans, generally bundled up together in one amount.

One of these will be a loan for the land itself, with a mortgage, while the other will be a construction loan, which is ‘drawn down’ in several stages. This means that the bank will make incremental ‘progress payments’ to the builder, at the end of each major construction stage.

The stages of construction can differ depending on your builder, but typically include such major milestones as when the base and frame of the house are complete, when fixing and fit-off has occurred, and the time of handover.

What this means for you as a home-buyer is that when you are paying off your construction loan, you will generally only pay interest on the amount of money that the bank has paid the builder at each stage of construction, rather than for the whole amount.

Compare home loans

What are the pros of house and land packages for first home buyers?

House and land packages can have a number of possible advantages for first home buyers, including potential stamp duty savings, the possibility of access to the First Home Owner Grant or other government incentives, and the opportunity to build and customise a brand-new house of your very own, to your standards and tastes.

You can potentially save on stamp duty

Stamp duty is a tax that is payable on the purchase of a property. According to ME Bank, when you buy a house and land package, it is likely that stamp duty will only be payable on the value of the land, because there is not yet a house on it, so purchasing a home in this way could potentially save you money.

In addition to this, there are a number of exemptions and concessions to stamp duty available to first home buyers. These vary on a state-by-state basis, but you can read Canstar’s guide to First Home Owner Grants and concessions to find out what you may be eligible for.

You may be eligible for a First Home Owner Grant

In most parts of Australia, government grants are available for first home buyers, in the form of a lump sum payment to assist with the purchase of a property. These vary from state to state, but are typically only available for people building or buying a brand-new home.

This means that if you purchase a house and land package as a first home buyer, you may be able to take advantage of the FHOG scheme. If you wish to know more, Canstar’s guide to First Home Owner Grants and concessions has more detailed information.

You may also be able to take advantage of the First Home Loan Deposit Scheme (FHLDS), which is available through participating lenders for people building new homes.

You have the opportunity to create a house that’s yours

When you purchase a house and land package, you will typically be presented with a variety of home designs and block sizes to choose from, and will be able to pick a combination that suits your needs, tastes and budget.

There is typically also some room for customisation within this, and depending on the package and builder you choose, you may be able to choose between various features, finishes and styles for the interior, and add options such as swimming pools to the exterior.

Your new home won’t require remodelling and renovations

Purchasing an established home can often mean additional expenses in terms of renovations. You may decide to replace old and outdated fixtures such as ovens and air conditioning units in order to bring the dwelling up to a modern standard, or even undertake more major works like knocking down walls to update the home’s floor plan.

An advantage of a newly-built home is that once the build has been completed to your satisfaction, you will not need to undertake such renovations, as you will have a finished space with a floorplan that you decided upon, and new fittings and fixtures ready to use.

How much can I afford to borrow?

What are the cons of house and land packages for first home buyers?

As a first home buyer, there are also some things to be wary of with a house and land package. It is important to read your contract carefully, as things you may have thought would be included might actually count as extras, and the cost of adding upgrades and customisations can add up. The shrinking size of suburban blocks (as discussed below) is also something to keep in mind, as well as the location of the development itself, and whether there is sufficient infrastructure there. You’ll also need to consider the time a house takes to build, and the fact that you may need to pay rent elsewhere as you wait for your new home to be completed.

Things you may expect to be standard might not be included

Before purchasing a house and land package, it is important to check the contract carefully, in order to find out which things come as standard, and which come as extras. For example, you may walk through a beautiful display home fitted out with the latest European appliances and slick finishes, but discover that these things do not come standard and need to be purchased separately or for an additional fee.

You may even discover that some things you thought would have to be included will in fact come at an extra charge. For instance, while some first home builders might assume that landscaping, fencing or even a driveway would come standard with their house and land package, this is not always the case, and you may find that you need to pay extra for things you thought you’d be getting.

Customising the home can drive up the costs

House and land packages typically come at a fixed price with the ability to add optional extras, upgrades and customisations. These extras and upgrades could include such things as electrical outlets that come with USB inputs, benchtops made of premium materials, and luxury flooring.

These upgrades can improve the aesthetic appeal of your home and give it more of a luxury feel, but it is worth being wary of the fact that once you start adding these extras, the cost of the build can increase to well beyond what you may have initially budgeted for.

The cost of a house and land package can also be driven up by hidden fees and charges, such as marketing costs and commissions, that may come bundled into the price. It is likely these will be laid out in the contract, but if you wish to seek further clarification before purchasing a package, it may be worthwhile to ask the developer.

Your lot may be small

For many, the great Aussie dream is to have a home with a backyard for the dogs to run around or for the kids to play cricket. Research from the Urban Design Institute of Australia shows that, over the past ten years, the average lot size in most major urban centres has shrunk. In South-East Queensland, the average lot size went from more than 600 square metres in 2010 to less than 450 in 2019, while in Sydney, Melbourne and Perth, lot sizes have also contracted.

The shrinking size of Australia’s blocks is not only a consideration for people buying house and land packages – it can also affect buyers of new homes. If having a backyard is a priority for you, then you may therefore need to take the size of the block into account, and plan the layout and orientation of your house carefully, in order to maximise space.

You’ll need to carefully consider location and infrastructure

As Australia’s major cities continue to sprawl outwards, the parcels of land available for development tend to be further and further away from CBDs. If you are considering purchasing a house and land package in an outer suburb, it could be worth researching the available infrastructure, particularly in terms of roads and public transport, and considering how this will impact your daily life in terms of travel time and costs.

Given the changing face of the Australian workplace post-COVID, it may also be the case that you are working from home more than before. If so, an outer suburban development that has stable NBN service and is close to shops and recreation facilities might be a convenient option for a first home.

The time a house takes to build

The average home in Australia can take anywhere between four and 12 months to build. Where a house and land package is concerned, the time frame can potentially be shorter, due to the amount of pre-planning that goes in, and the expertise of the builders at constructing a particular style of house in large numbers.

Nonetheless, it is possible that such factors as inclement weather conditions or the availability of materials and trades can delay a build. It is worth keeping in mind that if you purchase a house and land package, you will need somewhere to live as it’s being built, so you will need to budget accordingly for rent payments during the construction process.

Your individual builder should be able to give you an estimate of how long construction will take, but a number of major Australian home building companies state that it can take up to 12 months in some cases for a new home to be built.

While house and land packages can be an affordable way for some first home buyers to gain entry to the property market, it is worth carefully considering the pros and cons before purchasing one, to determine whether this is a suitable option for you.

Cover image source: BalanceFormCreative/Shutterstock.com