Construction FAQ

What is a land & construction package?

This consists of a two-part contract between a land owner (mainly a developer) and a builder. The land is usually selected first and clients usually decide on this primarily on location, and other things like aspect (which direction it faces), proximity to facilities and price. Once the land is acquired, the builder can then be selected and draft up a house on the particular block. 

How is the finance structured?

The loan structure can seem intimidating, especially if you’re unfamiliar with the process, but there are a couple of ways it can work. Financing a Land & Construction Package is unique, as unlike an existing property, the finance is done in two stages: Land Acquisition and the Construction Loan. 

Once you have purchased the land, you will need a Construction Loan. A Construction Loan is the most common means of financing a house and land package, and nearly all banks and lenders offer this kind of loan. A Construction Loan requires funds be drawn down as each stage of construction progresses. Typically, a build will have between three to six stages, each requiring a “draw down” of the loan.

These stages include:

1. DEPOSIT – Upon land settlement – deposit before construction begins.
2. BASE – After the slab is poured.
3. FRAME – When the walls are established.
4. ENCLOSED – Roof, windows, doors etc
5. FIXING (“Lockup”)- Appliances, Interiors like cabinetry & tiling
6. PRACTICAL COMPLETION/HANDOVER – The home is ‘fine tuned’ blemishes buffed out and handed over to purchaser

Each time a stage is complete, you will begin paying interest on that portion. The drawback with Land & Construction is that while you are paying interest on the Construction Loan, you won’t be receiving an income as the property isn’t completed. The plus side is that the interest you pay is tax deductible. If you declare the property is for rental purposes, you can recoup some of the interest costs. 

How do I choose the right builder?

1. Define your needs. What size of the land and price range you can spend?
2. Fixed Prices. Beware contracts with a long list of ‘estimates’ and ‘TBA’s’. To avoid a  blow-out in costs, ask for a fixed price. Leave no stone unturned and  ensure you have information about every cost. Keep an eye out for clauses  such as ‘pending soil test’
3. Builder promotions. Watch out for builder promotions offering big discounts and bonus inclusions. Remember, if it sounds too good to be true, it often is. Look for real value.
4. Display homes. Don’t be distracted by extravagant display homes. Some builders won’t even construct many of the impressive features they have on show within their displays. Ask if they will build the home ‘as displayed’ and provide you with a fully itemised cost.
5. Is there a design fit? Does this builder have expertise in the style of home you seek?
6. Experience counts. While every builder was once a new builder, experience matters.
7. Verify the builder is licensed (where required) and adequately insured.
8. Warranty and service. How does this builder stack up for each?
9. Resale value. Have past homes from this builder maintained or increased value?
10. The Backyard. Some builders will create a level home site on your block for the house, but leave the backyard steep and un-useable. A good builder will consider your needs more carefully – a user friendly backyard is important for lifestyle.