New build values on completion?

Hello all,

We are considering a house & land package somewhere along the South/East corridor - Melbourne.

Our budget is in the region of 300-350k.

Primarily, we will be living in it for approximately 12 months post completion whilst we build another house on a block we already own.

We will then let the H&L house.

I am trying to find some information on the pro's & cons of H&L packages, and what their value tends to be immediatly at completion - worth more? worth build cost? or worth less?

Looking at rental prices and property prices in that area, I am basing my rental figures on 5% of the property value.

So, if we built a House & Land packaged 3 or 4 bed, single storey home in say Narre Warren / Berwick area for $350k, with completion say 12 months from now, would it be fair to assume a value of say +10% by completion? giving an estimated rent of $370 per week? Then, maybe a further 5% value increase in the following 12 months from completion with an anticipated weekly rent in 24 months time of $388 per week?

I would be interested to hear any comments.

Thanks.
 
I think the danger of house and land packages is that many of the houses in these estates are all similar.

I call it "Edward Scissorhands" estates. If you've seen the movie; all the houses where he lived where identical except for the colour.

If they are all the mass-produced type, they are basically going to be the same value as each other to a degree, there are lots of them, so the value of yours will be controlled by all the others around you.

Not that this is necessarily bad, as if there is strong demand, there will be good growth for everyones' houses, but if there isn't; you're stuck in a sea of non-performing properties.

Also, a lot of investors go for these types of properties, putting pressure on the rental demand (it could be low) as there are more properties available than there are renters. Again, may not happen, but it is a consideration. I would want to know what the rental demand in the area will be before I buy there.

Also; don't assume a steady 5% rental yield each year. Some years there could be no rental increases; especially if there is a higher vacancy rate due to oversupply. Think inner city apartments in Melb about 4 years ago. Lots of properties, all looking for tenants, long periods of vacancies and ultimately, there were big losses.

The benefit of a H&L is the depreciation on the building and fixtures, but this is not the main reason to invest. it's the icing on the cake.

I also wouldn't assume an automatic 10% cap growth on completion. If the interest rates keep going up and the buyers disappear, the building industry will come to a standstill, and house prices generally may go flat. It may even be worth less than what you've signed for on completion.

A bit gloom and doom I know, but you need to factor in the worst-case scenario in all investments.

The go would be to have a H&L in an exclusive little estate or court; a few nice, exclusive houses, with more architect/designer built designs with a point of difference. Scarcity factor.
 
Thanks for the info.

I realise it depends on the market, demand for house & rental availability etc. I just wondered if there was a general 'rule of thumb' regarding building off-plan. Do they generally cost more or less than buying an 2nd hand house on the same estate, ( stamp duty aside ). Or, is it wholly market dependant at any point in time?

We would be living in the property for at least 12 months, and it would probably be 12 months before it was complete - so we would be 2 years into it by the time we came to rent. Hopefully, by then, the estate will be almost complete too, which should see prices increase a little maybe due to the lack of blocks left on a given estate.

We would look to keep this house for a minimum of 5 years+, so we're not after a quick buck - just wanted to know if it's worthwhile at all. As long as we don't lose money, we'll be happy with that as primarily we need a home by next October when we leave our rental.

We figured the best way to do it was H&L now, to be ready for the end of our lease. That way, we can secure a house at today's prices and not start paying until we give up the rental.
 
I am financing a build at the moment, and the bank seems to think the "completed" value will be greater that what they are prepared to value it at right now.

Whether that holds in the market is another thing I suppose. I am hoping for at least 20% on cost.

If the value is no more, then why not just buy an existing place?
 
I am financing a build at the moment, and the bank seems to think the "completed" value will be greater that what they are prepared to value it at right now.

Whether that holds in the market is another thing I suppose. I am hoping for at least 20% on cost.

If the value is no more, then why not just buy an existing place?

Couple of reasons, stamp duty saving being one. The main reason being we are new in the country ( 2 months ) from the UK.

We are locked into our rental until next Ocotber, which isnt necesarily a bad thing as we are near the city & enjoying that side of life.

Our original plan was to buy a place that is currently let, then use that ourselves in OCtober whilst we build on the land we bought, then re-let. But - for our budget, we would have to top up the mortgage on the IP. We cant afford to do that and pay rent until Emma finds work.

So, we thought if we got H&L we could get it going now for only 10% deposit, then move into it when our lease is up - or thereabouts. That way, we dont have to wait until Emma is working.

We can then build on our block in the Chase, Berwick, that we bought a few weeks back and let the H&L house.
 
Interesting topic for me as I live in the area and currently have a holding deposit on a block of land in The Chase (Berwick) which we will build on this year.

I am going to take a guess and say for your price range you will be looking at properties like those in the new estate on Tinks Rd Narre Warren. Other than those, I think you may be hard pressed finding a house and land package in Berwick/Narre Warren for low $300Ks in the current market.

In respect of my PPOR being built, I would say that after we do our own things, ie. blinds, landscaping etc, then I would be realistically hoping for around a 5% gain on the purchase price and improvements. But I am a usually take worst case scenario when projecting values.

In terms of rentals, there are quite a number available in Narre Warren and Berwick. Perhaps there are fewer at the moment due to the Christmas break however I think the number of rental properties available will increase over the next few months; thus, increasing supply.

Also, I note your comment that you won't need to start paying anything until the house is completed however depending on your agreement with the builder, you may be required to make progressive payments during the building process.
 
From my experience ... if you are looking for a constant supply of tenants, you are better to look at estates where they are either just starting out (cause land will never be that cheap again) or havebeen going for less than half of their espected life. many tenants on these estates are building their own homes and prefer to live on the new estate to watch their home being built.

I agree that if you choose an identical project home you are controlled to a degree by how many other similar homes are there ... but you can always go for a better looking facade and add a few needed feature within which won't cost you too much.
 
Hi Tony and Emma

I like to make comparisons with houses that are already built in the area, what is the price now of similar houses? If it is the same or similar or more go with the package as you will have minimal holding costs whilst the house is being built and you experience capital growth.

Assuming the 10% deposit is on land only, then the settlement might be 4-8 weeks away, some of mine I have had 12 months to land settlement on 5% deposit which is the ideal situation. So your repayments initially will be on land cost only then as you make progress payments along the way the repayments will go up but you won't have the full blown loan repayments until the end when complete. By then if you have chosen your mark correctly you would hope to be $50,000 in front for a good result and if things boom along nicely perhaps a lot more.
 
Hi Tony and Emma

I like to make comparisons with houses that are already built in the area, what is the price now of similar houses? If it is the same or similar or more go with the package as you will have minimal holding costs whilst the house is being built and you experience capital growth.

Assuming the 10% deposit is on land only, then the settlement might be 4-8 weeks away, some of mine I have had 12 months to land settlement on 5% deposit which is the ideal situation. So your repayments initially will be on land cost only then as you make progress payments along the way the repayments will go up but you won't have the full blown loan repayments until the end when complete. By then if you have chosen your mark correctly you would hope to be $50,000 in front for a good result and if things boom along nicely perhaps a lot more.

Thanks for all the replies.

To be honest, until we speak to some builders ( this weekend ) I dont know what the payments will be like. I have seen advertisements recently for some estates where you can go H&L for no deposit and no repayments until completion.

The houses around the Chase, Berwick, seem to go for good money - but as mentioned by In The Red it may be hard to find one on budget, although there do seem to be some around.

The other area we are going to see is Marriott Waters in Lyndhurst. The packages there are a little cheaper, but the estate is very new I thnink, so not many for sale for comparison at the moment, and I cant find much info on Marriott Waters either.
 
One advantage is that you only pay stamp duty on the land value not the house cost. But then you have to pay interest on the progress payments whilst collecting no rent.

I would look at vacancy rates in the area as most renters will be people building their own house and only want to rent for 8-12 months.

Cheers,

Bazza
 
Hi Tony and Emma

Love to know which estate is offering no deposit and nothing to pay until settlement! The best I have managed is $5,000 and nothing until settlement - what are the details of the no cash down packages?
 
The other area we are going to see is Marriott Waters in Lyndhurst. The packages there are a little cheaper, but the estate is very new I thnink, so not many for sale for comparison at the moment, and I cant find much info on Marriott Waters either.

Hi Tony and Emma,
I have PMd and emailed you regarding info about this and other estates in the south east,
Cheers,
Nathan
 
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