04 Feb 5 Common Traps of Buying House and Land
The House and Land strategy in property investment refers to purchasing a raw parcel of land, engaging a builder, then going through the construction process. These can be performed in ‘greenfield’ estates on the edge of the urban sprawl, or on ‘infill’ sites surrounding by existing infrastructure and amenities.
Benefits of ‘House and Land’ Investments
Benefits of the House and Land strategy can include stamp duty savings on land purchases, high depreciation on the newly built house, no expensive body corporate, home owners’ warranty, and potential profits and higher rental yields.
Risks of Buying ‘House and Land’ Investments
House and land investments can be risky and perform poorly if an investor makes a decision solely on a glossy brochure and hyped up sales pitch, especially in greenfield estates. There are various things to consider with this strategy to make sure it is going to be a sound investment.
Below are some of the sales pitches to be wary of, and the reality of the claims.
1. Manufacture equity through stage price increase on land
The pitch: ‘Get in on early stages, developer will raise prices on later stage releases’
Reality: This can be true, but it is usually only $5,000 – $10,000. This represents a 1-2% increase on a $500,000 package. If there is no other growth in the investment this is a pretty poor result compared to buying in an established area that is achieving 5%+.
2. Fast population growth
The pitch: ‘Population is growing x times faster than everywhere else’
Reality: The population may be growing at an increased rate as it is usually coming off a low base. However, the supply in these greenfield areas can equally keep up, and sometimes surpass the actual demand. This keeps a lid on any significant price growth.
3. Increased infrastructure spending
The pitch: ‘Massive infrastructure spending will drive property prices upwards’
Reality: These projects can take 10-20 years to come to life, the effect in prices is usually very protracted. The reason there is also an increase in infrastructure is there is usually none there to begin with.
4. Turn-key packages
The pitch: ‘Fixed priced contract with everything included in the price’
Reality: There is so much variance in the quality of house and land packages. Some can be assembled cheaply to appear good value, when in reality they are inferior and will not last the test of time or maintain resale value.
5. Unregistered land
The pitch: ‘The land is so scarce you have to buy it before it is actually ready to be built on’
Reality: Unregistered land is essentially like buying ‘off-the-plan’ and therefore has inherent risk as to when the land will be actually registered and ready to build on. Any delays can cause finance issues and affect the performance if bought at the wrong time of the market cycle.
Custom Built House and Land on Infill Sites
Custom Built House and Land projects – on infill sites –are one of Sound Property’s flagship investment strategies. From hand selecting infill parcels of land,
Understanding the investor profile is critical to determining the style, price, location and strategy of property investment that will best suit. This includes goals, timeframes, risk profile, experience, financial capacity and required returns.
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest. Past performance is not a reliable indicator of future performance.