If you’re an overseas investor (or an expat) looking to buy a house and land package in Australia, there are some financing considerations that you need to be aware of.
How can I buy a house and land package in Australia?
Land in Australia is progressively released by the government for new housing developments as the country’s population increases. Developers will often buy a large parcel of land and subdivide it into multiple housing lots for sale to buyers.
You can usually buy a house and land package in Australia in one of two ways:
1. A house and land package with the new house already built by the developer.
A benefit of this method is that the house can be ready to move in straight away, so you’ll be able to start earning rental income on your investment property as soon as you can find a tenant.
2. A house and land package where you buy the land and then choose a builder to design and build a house for you. In other words, you buy the land and wait for your house to be built.
A benefit of this method is that you can design your investment property house exactly the way you want it to be. Be aware though that it’s often a developer’s condition of sale that you build on the land within a specific period (usually a maximum of two years).
If you’re just initially buying residential land only in Australia as a foreign investor (i.e. not a house and land package), it is a legal requirement that you must build a residential dwelling on the land within 4 years. Evidence of the completion of the dwelling needs to be provided within 30 days of its completion.
What are the benefits of buying a house and land package as an investment property?
Whichever way you buy, two benefits of buying a new house as an investment property are:
- You’ll have minimal repairs and maintenance for the early years of your investment.
- New houses can potentially generate higher rental .
- You don’t have to pay body corporate fees on a house like you do on a unit.
- You’ll have the potential to generate capital growth on both the land and the house. If you bought a unit instead, you would only be able to generate most of your capital growth on its value, because the land it is on is shared with other unit owners.
- You’ll only pay government stamp duty on your land, not on the new home you build. This will be cheaper for you than if you buy an established house, because if you did that you would have to pay stamp duty on the total value of both the land and the established house.
A two-step financing process
If you choose to buy your land and build a house of your own design on it, it involves two separate contracts: one with the land developer and one with the builder. Accordingly, a two-step financing process is required too. First you finance the buying of the land, then you build and finance the house construction separately. As there is only one property involved, both loans must be taken from the same lender.
Buying your land is done with a standard mortgage loan. You’ll need to start making repayments on this loan as soon as you buy your land. Repayment is interest-only.
Building your investment property house is then done with a construction loan. As part of your loan application process, you’ll need to provide your lender with the contract you have with your builder. This contract will outline the specifications and materials to be used in your new home, the deposit you need to pay, as well as a drawdown schedule for the remaining funds needed to pay for your house construction.
This drawdown schedule will outline construction milestone stages when further payments are due to the builder. You’ll progressively draw the funds from your construction loan to make these payments as the milestones are reached. Your lender will also usually inspect the house construction at each milestone stage before releasing a progressive payment to the builder. Interest on the construction loan is only charged when the funds are transferred to the builder progressively.
These land and construction loans are bundled together. You simply start paying the land portion of the loan straight away, and then progressively start paying for the construction loan as you draw on those funds.
If your budget will allow, a good way to get ahead with your payments during the construction process is to pay extra on your land loan while you are waiting for the full draw down and repayments on your construction loan to commence.
How we can help
Financing for Australian house and land packages is increasingly becoming limited and expensive to access if you are a non-resident or foreigner.
At FindAHomeLoan, sourcing mortgage solutions from Singapore and Australia for investors looking to buy property in countries like Australia is one of our specialities. We can help you navigate Australia’s mortgage lending restrictions.
We would be happy to speak or meet with you to discuss your needs and goals. We believe you should have a mortgage partner, just like how you engage a mechanic to make your car run smoothly, we can do the same with your investment property financing.
We’ll take the time to understand your circumstances and provide the best advice.
Contact us now to find out how we can help you!