If you’re an overseas investor (or an expat) looking to buy a house and land package in Australia, there are some potential problems that you need to know about and consider before you commit.
1. You won’t receive any rental income straight away
When you buy a house and land package, you obviously need to build a house on the land (unless you buy one of the land developer’s display homes). That means you won’t be getting any rental income from tenants while you build. But you’ll still need to be making your repayments on the land and on your construction loan as the building of your home progresses.
If you don’t have the cash flow to do that without your rental income, you’re better off buying an established home that you can potentially rent out to tenants straight away.
- Housing oversupply
In certain parts of Sydney, Melbourne and Brisbane, there is currently an oversupply of houses, so be careful where you buy your house and land package. It will be harder for you to attract tenants in oversupplied areas and your capital growth potential could also be affected.
You might also find that additional new estates are competing with you in nearby areas soon after you buy. That can similarly affect your potential to find tenants and your short-term capital growth prospects.
3. Potentially inflated and/or variable prices
House and land packages offer convenience for buyers because developers and builders in these estates usually work together. But that convenience can come at a price, which may include built-in commissions for others that are involved in marketing and selling the packages.
You might also find that you must pay more for extras to make the home that you’re going to build more attractive to potential tenants. For example, basic landscaping or the inclusion of features like driveways. Often these costs aren’t included in the advertised price of house and land packages.
Building prices might also vary from the norm due to factors like the type of soil on your block of land and the degree of slope. The impact of those factors on the cost of building your investment property house may not become apparent until after you buy the land.
You might find that it’s cheaper to source your own land and arrange to build on it separately using a builder of your own choice. Be aware though that if you buy residential land in Australia, it’s a legal requirement for foreign investors to build on it within four years.
- The difficulty of supervising your building process
With you being based overseas, it will obviously be more difficult for you to oversee the building process to make sure everything is being done to your satisfaction with the construction of your investment property. Lenders often require inspection for each construction phase before progressively releasing the loan funds.
On top of these four issues, there are tough mortgage lending restrictions for foreign investors in Australia. These restrictions include lower maximum loan-to-value (LVR) ratios (only up to 70%) as well as higher interest rates (currently 5% or more).
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. But 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 to navigate your way through the approval process.
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!