By supporting your decision with good research, you can ensure you’re purchasing the right block of land for your needs and hopefully avoid any costly surprises down the track. Not sure what to look for when buying land to build a house? Here, we walk you through the key steps to buying a block of land. Big or small, urban or regional, buying land is all about finding the right plot for your future lifestyle. Waterford makes the process of buying land easily.
What Are The Advantages Of Buying Land And Building?
Done right, with expert loan advice, buying land and building can have huge benefits. For a start, you get to live in a home that’s purpose-built to your needs in an area you love. You also get to enjoy the lovely, brand newness of your home without ‘wear and tear’ from previous dwellers.
Buying land and building also brings financial advantages:
- When you choose the right area and land, the value of your home is more likely to grow substantially over time.
- You may be eligible for more government grants than when you buy an existing home.
- The amounts you borrow are initially less because they are staged by completion. The most common stages of completion are land purchase, pad (floor), roof, lockup and completion. You draw down the amount needed from your loan at each stage rather than one big amount when buying an existing home.
How Do I Choose The Right Block Of Land?
Check The Area Has What You Need.
Living in an area, you love one of the huge benefits of buying land and building. At first glance, you may be attracted to proximity to the beach or a beautiful view. However, consider the following to ensure you make the best purchase decision:
- What services will you need now and in the future? Check if the area has adequate child care, schools, medical services, shopping and public transport. If you’re buying in a brand new area, find out when these essential services will become available? Are access to their roads going in and out?
- What type of constructions are allowed in the area? Is it a general residential zone, or will there be higher density or large lot residential constructions down the track? It’s important to check to zone because the general personality of the area may change significantly in the future. It’s also important to be clear on the zoning restrictions if you’re looking to increase the value of your assets by subdividing or building a granny flat. Could your current view be built out by high rise buildings?
Understand The Lay Of The Land
Apart from the size of the block, it is important to consider the terrain of the block:
- Tree removal can be very costly. Maybe restrictions on how many and which trees you can remove.
- Slope–a building can be more complex and expensive on a sloping block. Levelling out a block (if it’s even possible) excavation can add a lot to your construction costs.
- Rocks – what’s the land made up of? Lots of rock in the ground may add to your costs, requires more excavation.
- Forces of nature – in the area in a high fire zone? Is it prone to flooding? Important to know this because it may create challenges for getting home insurance down the track.
Do I Have To Pay Stamp Duty?
If you buy land, then build a home later, stamp duty is payable on the land’s purchase price. In this scenario, your builder starts construction when settlement occurs, and the land is in your name. Try to arrange for settlement to happen simultaneously as the Council approves building plans. This will help minimise your borrowing costs. If you don’t want to make any repayments until your new home is built, you can ask for a price ‘on completion’. In this scenario, the builder purchases the land and borrows money to cover building costs. The builder recoups costs once your loan comes into effect.
You pay stamp duty on the full purchase price of your land and house, as well as the following costs:
- stamp duty and solicitor’s fees on the land purchased
- builder’s loan costs (fees, interest)
- construction costs
FAQs About Buying Land To Build A House
If you want to build a new home, buying a new block of land that hasn’t been built on before is the most cost-effective first step. It gives you a blank canvas to build the perfect home to suit your needs.
- Buying land and building a home takes time – anything from six months to a couple of years, depending on the type of land you buy and the home you want to build.
- Buying an existing home is much faster but more restrictive. In a major city like Sydney, it is also highly likely to be more expensive – not to mention the fact that you’re buying second-hand.
Many first home buyers, investors and downsizers in Sydney are opting to take advantage of the cost benefits of building a new home, knowing they’ll have something brand-new at the end of the process.
To build a permanent residential structure like a home on land in NSW, you first need permission. Then, the local Council decides where you’re allowed to build, according to the zoning of land within their area. Land Zoning is the term used for the specific rules for building a parcel of land.
For example, while some parts of Sydney are zoned as high density – meaning blocks of apartments can be built in that area – low density means only free-standing homes are allowed. Some areas, like industrial precincts, are where building a residential dwelling is impossible. Land zoned as rural – that is, for agriculture – also have rules as to how much of a given parcel of land can be dedicated to the home.
On residential blocks, zoning also dictates factors like setbacks (that is, how close to the street you’ll be allowed to build the home and any attached structures, such as a carport) and how many storeys high a home can be. It will also impact a landowners’ ability to build a second dwelling like a granny flat on the site. The most cost-effective way to buy land to build a house is to purchase a greenfield block.
Greenfield is the term used to describe new land that has been made available by the government for new housing. As cities and regions grow and established areas become more populated, greenfield areas are more affordable to buy and build a new home. In addition, as new infrastructure such as roads and rail connect these emerging areas, the land is released for purchase by aspiring new home buyers. Some of the most popular locations for greenfield land in Sydney include Austral and Leppington in Sydney’s southwest and Marsden Park and Box Hill in the city’s northwest.
Another term you may come across is brownfield, which describes land that was previously developed but is not in use. Due to contamination and other site cleaning costs, this land can be costlier and more time-consuming to build on. A third way to buy land for building a new home is to purchase an existing home, demolish it and start again – what our industry calls a knockdown rebuild. This is more popular among people who already own the home they want to replace.
Most of Sydney’s greenfield land is in emerging suburbs in and beyond the city’s middle suburban areas. Some of the most popular locations for greenfield land in Sydney include Austral and Leppington in Sydney’s southwest and Marsden Park and Box Hill in the city’s northwest. Rawson Communities has neighbourhoods in each of these locations.
When you buy land and build a house, you need two separate loans – one for the land and one for the build. Please speak to a mortgage broker, such as our team at Mint Loans, about land finance. They’ll help you find the best option to suit your circumstances and structure the finance around the land registration process (more on that shortly). Generally, there will be three steps to pay for your land.
- Secure the block – a $2,000 fee paid to take the land you want off the market while you get your finances in place to buy the block.
- Deposit – upon signing the land contract, you’ll pay 10 per cent of the land purchase price, minus the $2,000 you paid to secure the block (not including the cost of the build). Even if you’re buying a house and land package, you’ll still pay for the land separately.
- Final payment – when the land has been registered and is ready for building to start, the balance of the land cost is payable. This means that you now own the block and can build your home on it.
It is a blank canvas when greenfield land is rezoned for residential housing. Roads need to be built, and services such as sewer, water, power and gas need to be established in the area. It’s up to your local Council to build the roads and have essential services connected to your block. Until that happens, the land is unregistered – meaning you can start the process of buying it but can’t do anything with it at this stage.
Once Council is done, they will give their permission to build houses in the area. This permission comes in the form of land registration. Once your land is registered, it becomes build-ready land. So you can now start the process of building the home. Across Rawson Communities estates, we typically have a range of registered and unregistered lots available – meaning we have lots where you can start building straight away and others that will take longer to be build-ready.
Land registration can take three to 18 months in greenfield areas, depending on the location. When looking at places to buy, make sure you ask when the land you’re looking at will be registered. If you’re hoping to have something you can move into within six to eight months, for example, you should be looking for land that is already registered or will be registered for building to start within the next month or two.
The size and shape of your block, and its location, will determine the kind of house you can build. For example:
- A narrow block will mean you can’t build a house with a wide frontage and may need to consider building a two-storey home for the amount of floor space you want.
- You may be attracted to a corner block – but while it is bigger, it also has two street setbacks, which will restrict what you can build on the site.
- If the block is sloping, you may find the cost of building is slightly higher to cover levelling the area you intend to build on.
Am I Eligible For The First Home Owner Grant?
Typically, most state governments subsidise buyers buying a new home over an established one. In NSW, the $7,000 First Home Owner Grant was discontinued in 2012, and there is now a $10,000 First Home Owner Grant for new homes available. If you’re not a first-time buyer, you can still get a $5,000 grant for new homes – which means even if, for example, you’re after self-employed home loans for your second property, you can still benefit. Similarly, in Queensland, the $15,000 Great Start Grant helps those buying or building a brand new home, while the Australian Capital Territory only targets new or renovated properties with its $12,500 grant.
Things To Consider Before Buying A Block Of Land
It would be best to consider all the legal obligations that come with buying a block of land. For example, when you intend to build on the land, you will first have to get approval from the local Council. In addition, many blocks have covenants that place certain building materials under restrictions. Being aware of these limitations before you purchase will enable you to adapt your plans to suit your budget.
Consider the land’s proximity to amenities like shops, schools, hospitals, parks and public transport. If you choose to sell the land or lease it, these amenities will ensure your investment will likely fetch better returns in the long run.
Make sure you are aware of the availability of utility services like power, gas, internet, water and sewage to your plot. Determine whether these provisions are already in place. If they aren’t, find out the costs of installing them and factor them into your budget.
Building a house that is energy efficient will benefit your bottom line and the planet. This is where paying attention to the orientation of the block of land you buy pays off. For example, a northern orientation will ensure the house gets enough natural light and warmth during winter while also protecting it from excessive heat in the hotter months of the year. As a rule, having a house built with optimal orientation will result in considerable savings on the energy bills in the long run.
Size And Shape
The design of your house will largely depend on the size and shape of the land you buy. Buying a block of land that is rectangular is a popular choice, particularly for resale. However, consider what you have planned for the land before you buy. Do you want to subdivide? Do the land dimensions fit the plans you have? Knowing these things before you start looking will help you choose the best block for your needs.
The Terrain Of The Block
Take note of the terrain on the block and anticipate the costs you may incur because of this when building. For example, levelling or construction can be more costly if the block is steep. Likewise, the cost of removing trees or excavating rocks needs to be considered as an extra expense and factored into your budget.
Soil testing your block is just due diligence when purchasing a block of land. Testing the soil will ensure that you’re not buying a lemon with unknown issues lurking out of sight. A soil test will look at the physical and chemical characteristics of the soil to determine if it’s safe and help you estimate the stability and land retention of the block. In addition, good soil composition is important in minimising the cost of building a sturdy foundation.
Type Of Home You Want To Build
Decide who you will be building the house for. For example, a family with children would ideally want a backyard and multiple bedrooms, while retirees or young professionals may seek low maintenance. Accordingly, determine whether the block of land can be adapted to these needs.
Lastly, looking at neighbouring properties can provide you with a vague idea of the issues in the area. Before buying a block of land, also remember to enquire about any building proposals or future developments pegged for the area, as they may impact your plans.
If you factor in each of these things when looking at a block of land and it ticks all the important boxes, buys it! You can rest easy knowing that you’ve done your research. You choose a block that suits your requirements while hopefully avoiding any surprises or expenses when you start building.