Are you planning on owning a home anytime soon?
Undeniably, becoming a homeowner, is a core dream for many Australians. According to the Australian Bureau of Statistics (ABS) in the 2015–16 Survey of Income and Housing, an estimated 30% of households owned their homes outright and 37% were owners with a mortgage. This trend is remaining steady and predicted to rise in the coming years.
When searching for a home, you’ll probably come across two packages. The first one is the house and land package which offers a home complete with the land its stands on, and the second package, the land-only package, requires you to buy the property first and build your house later.
As an investor, it might be challenging to decide which the best option for you. Here, we break down the merits and demerits of each package to help you make a perfect decision!
The Loan Terms
A home loan or mortgage is the preferred option for many home buyers.
When considering the two homeownership options, each of them comes with different loan terms. When you buy land on which to build your home later, you cater to two loans:
- The mortgage loan to buy the land
- The construction loan for your house
In essence, you’ll be servicing two loans at ago. Also, each of these loans comes with different interest rates and terms of repayment, and this aspect alone can increase your homeownership costs.
For the house and land package, also known as a turnkey package, the loan comes as a bundle. The developer offers a fixed price loan that covers both the house and land. As such, you sign a single contract and service one loan, which could save you some money in the long run.
Again, when you consider these turnkey packages, the process becomes more relaxed as the finance goes directly to the developer, and you become an immediate property owner. Hence, you can move in or rent the house to a tenant immediately.
Modification and Designing Options
Buying land and building later allows you to develop your dream home.
You can choose the best design, colour, finishing, fittings, and landscape designs without the influence of the developer. You’ve got the opportunity to pick the type of floor tiles, wall finishing, and roof finishing for your home as well as perform several modifications to ensure that your finished home matches your lifestyle.
For the house and land package, modification can be a nightmare. You get an already complete house built without your input. For instance, if you wanted to add a backyard swimming pool, it may cost you an arm and a leg to change the developer specs already in place to fulfil that goal.
This package offers a chance for minor modifications such as repainting the interior space to match your taste. Otherwise, any significant changes will be expensive or near impossible.
Stamp Duty and Other Costs
Government and Australian territorial states charge a stamp duty to property buyers.
However, they do offer some incentives to help builders kick off construction projects. Both house and land package and the land-only options come with different stamp duty rates.
The land-only option is far much cheaper than the former. Here, you pay stamp duty for vacant land. This duty is low than for the turnkey land-and-house packages where you pay for both properties. Hence, it allows you to save some money.
Similarly, the land-only package offers you some time to save for your building. You can buy the land, repay the mortgage, and use personal savings to build your house. This flexibility isn’t there with the land-and-house package.
Photo Credit: Australian Bureau of Statistics
As you can see, each home loan package has its benefits and shortcomings.
You need to consider these pros and cons carefully to choose the best home loan package that fits well with your needs and preferences. If modification and designing is your priority, building your house from scratch can be a good idea. Likewise, a house-land package is suitable for people looking for immediate occupation or hustle-free homeownership.