Hi, Andrew Cull from Sound Property.
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 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.
However, 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 be wary of with this strategy to make sure it is going to be a sound investment. Some of the claims that we often hear include:
1. Fast population growth in the area
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.
2. Increased infrastructure spending in the area
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.
3. 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.
To avoid these pitfalls Sound Property recommend you look for infill parcels of land in proven suburbs and build with quality builders. This will not only reduce risk but ensure the investment provides the best returns possible.
For a full overview of the traps to avoid when buying house and land, please refer to the article link in this post.
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.