What is a house and land package and how does it work?

A house and land package is one of the most common ways first home buyers get into a brand new home, especially in growth suburbs and new estates. The idea is simple, but the contracts and the finance work differently from buying an established house, so it is worth understanding how the whole thing fits together.

What a house and land package actually is

A house and land package bundles together a block of land and a home design, usually offered by a developer or builder in a new estate. You choose a lot and a compatible house design from the builder range, often with some scope to customise, and the two are packaged so you can buy and build them together. It is a streamlined way to end up with a new home without sourcing the land and the builder separately.

You sign two contracts, not one

This is the key structural difference. With a package you generally sign two contracts: a contract of sale for the land, and a separate fixed price building contract with the builder to construct the home. They are bundled in presentation, but legally they are two agreements, which is why the finance and the timing work the way they do.

How the finance works

Because there are two contracts, the finance is usually a construction loan. The two parts can be arranged separately or, more commonly, bundled into a single facility with a land component and a build component. The construction part then releases money to your builder in stages, called progress payments, as the home is built, rather than as a single lump sum.

The land settles first

In a typical package you sign and pay a deposit on the land first. The developer registers the land title, and settlement on the land often happens some months later depending on how developed the estate is. Once the land is registered, or sometimes just before, you sign the building contract, which locks in your design, inclusions and build price, and construction can begin.

The valuation is done on completion

For the build, the lender values the finished home as if complete, based on the plans and the fixed price contract, and lends against that on completion value. It is worth understanding this, because in a brand new estate with few comparable sales, the on completion value can sometimes come in below your total land plus build cost, which is known as a valuation shortfall.

Stamp duty is generally only on the land

A genuine advantage of a package is that stamp duty is generally charged only on the land, not on the full value of the finished house and land together. On top of that, eligible first home buyers building new often pay reduced or no duty on the land at all, depending on the state, which can be a significant saving compared with buying an established home of similar value.

Grants and the new home advantage

Because the home is brand new, a house and land package generally makes eligible first home buyers eligible for the First Home Owner Grant, and it can be combined with the 5 per cent deposit scheme and state stamp duty concessions on new homes. That combination of new build incentives is a big part of why packages are popular with first home buyers.

The trade offs to weigh up

Packages are convenient and can be cost effective, but they have trade offs. Design choice is usually limited to the builder range with some customisation, the build takes time during which you may be paying rent, and you are relying on the builder and the estate timeline. Reading the fixed price contract carefully, and understanding what is and is not included, protects you from surprises.

Getting the finance right

Because of the two contracts, the staged construction loan and the on completion valuation, house and land finance has more moving parts than a standard purchase. Getting pre-approval before you commit, and using a broker who knows construction lending, helps you line up the land and the build and avoid the common pitfalls, usually at no cost to you.