Buying Land in Australia

Buying land to build your home can be super exciting but also a little overwhelming. Understanding the jargon and intricacies of buying land is important if you want to get the most out of your home and feel confident in your purchase.

Embark on the journey of buying the perfect plot of land for your new home build with absolute confidence. In this article we’ll equip you with the ins-and-out you need to make the most informed decision possible when purchasing land in this vast country.

We’ll explore the key considerations of buying land, such as land types, soil testing, financing, choosing a builder and more. We’ll also compare building your own home to purchasing a pre-built home.

The first major consideration when purchasing land is the type of land. This includes numerous factors such as zoning, orientation, size, utility connections, and neighbouring properties.

Zoning refers to the system used by local councils and state governments to determine the purpose of each block of land. These types can differ depending on the state; however, they typically allocate categories in residential, commercial, farming, industrial and public land use. Specific zones, such as farming/agricultural and industrial zones, will limit your ability to build.

For example, to build on agriculturally zoned land, you must get a planning permit from the local council. However, each case is assessed individually, so approval is not guaranteed.

It is not advisable to purchase industrial land for residential purposes, although some states allow caretakers to live on such properties.

Ultimately, it’s crucial to understand zoning and what zone your potential lot falls in, as it can impact your ability to secure a residential loan and build on the property. Luckily, it’s easy enough to check property zoning through the Land Government website, or if you’re looking for more in-depth property advice, you can seek out a professional’s opinion.

On top of typical land zoning categories, some common land classifications include Crown and Freehold land.

What Is Crown Land?

Crown land is land held by the crown. The relevant State Government regulates this land, which is typically not for sale. On occasion, Crown land may be listed if it is not useful to the public. However, purchasing Crown land can be lengthy and complex.

What Is Freehold Land?

Freehold land is any land not owned by the Crown. This land is owned entirely by the owner and has no time limit on ownership, meaning the owner can pass the land between generations. Less than 5% of land held by the Victorian Government is freehold land.

Once you’ve determined if the land you’re interested in is suitable for residential purposes, you can begin to consider the finer details:

Orientation

This component will impact not only the lot you choose but the design and functionality of your completed home. Choosing a lot that allows you to build your home in its optimal orientation will benefit your home in terms of heating, cooling and natural light.

With proper home orientation, heating and cooling costs can be reduced using “passive” heating and cooling. This means the home’s orientation will passively heat and cool your home through the day by planning for the sun’s position in relation to your home’s orientation. YourHome, Australia’s independent sustainable housing guide, discusses this further.

Size

The size and shape of your lot can directly impact the designs available. This means you’ll need to consider what you want from your ideal home and how the lot might help or hinder your goals.

For example, do you want a large backyard or garage? Or would you be happier with a smaller, lower-maintenance yard? These are important questions to ask early in the research process.

Utility connections

Depending on the land you purchase, you may need to organise water, gas, electricity, phone and internet lines. Depending on local providers, this can incur high costs and lengthen your overall timeline.

Neighbouring properties

Researching neighbouring properties is important for many reasons. Most obviously, it will help you determine if the neighbourhood will suit your lifestyle. It will also allow you to determine site access and future property trends. For example, check the zone of neighbouring properties to avoid building next to a future commercial site.

With all these factors in mind, you can begin critically and confidently approaching the property market. However, there is one more crucial step to determining if a property is right for you.

Before purchasing, it is recommended that you do a soil test. A soil test is a mandatory undertaking during site preparation, where geotechnical engineers drill, extract and test your soil to determine the site’s soil characteristics. However, instead of waiting until post purchase, you can choose to do a soil test prior to purchase, allowing you to avoid additional expenses associated with challenging sites. A soil test reviews a number of specifics and variables, but ultimately they can be simplified into two broad overarching components:

Reactivity: Site reactivity refers to how the soil acts or changes when it gets wet or dry. Essentially how the soil behaves and adjusts when there is a change in the amount of water, or moisture, within it.

Bearing capacity: Site bearing capacity refers to how well the soil can hold up the weight on top of it. It depends on things like the type of soil, how well it sticks together, and density.

Depending on the results of your soil test, your site will be labelled as one of seven site classifications, according to Standard AS 2870.

Class A – Acceptable: This soil is stable and non-reactive with little to no ground movement (ranging from 0-10mm of surface movement from moisture changes). These sites typically consist of sand or rock. Houses on this soil will typically require a basic slab with footings.

Class S – Satisfactory: This soil has a slight possibility of movement (ranging from 10-20mm of surface movement from moisture changes) and is typically made of clay. Any houses on this soil typically require a basic slab with footings.

Class M – Moderate: This soil often has a moderate level of movement (ranging from 20-40mm of surface movement from moisture changes) and is made of clay or silt. Any houses built on this soil typically require a reinforced slab foundation.

Class H1/H1D – Highly reactive: This is a highly reactive clay site which may experience a high amount of ground movement (ranging from 40-60mm of surface movement from moisture changes) as a result of soil conditions and moisture changes.

Class H2/H2D – Highly reactive: This is a highly reactive clay site which may experience a high amount of ground movement (ranging from 60-75mm of surface movement from moisture changes) as a result of soil conditions and moisture changes.

Class E – Extreme: Extremely reactive sites. May experience extreme amounts of ground movement (more than 75mm of surface movement from moisture changes) as a result of soil conditions and moisture changes.

Class P – Problem: Problem sites are characterised by soft, loose or volatile soil (typically soft clays, loose sand, silt) with a high likelihood of excessive movement. This leads to a very poor ability to evenly bear load. Sites may be classified as ‘Class P’ as a result of abnormal water conditions, mine subsidence, landslides, collapsing land, sinking land, coastal erosion or cutting and filling. Additionally, sites can also be classified as Class P if they do not fit into any other classification category for atypical reasons.

Your site classification, as a result of the soil test, will help determine the design and type of house foundation you may need. A house foundation for a new home can vary in costs greatly, from $5,000 to $40,000 depending on complexity and site classification. On the other hand, a soil test only costs around $1,000 to $2,000 to complete. Simply to protect you from any unexpected and unwanted surprises, getting a soil test prior to purchasing and building is absolutely worth the initial cost.

There are many other hidden costs and factors to purchasing land, making it extremely important that you prepare appropriately.

According to this research on the UDIA State of the Land report, Melbourne’s average price of land is $331,750 with stamp duty.

This cost, combined with the average home construction price in Melbourne of $370,008, brings the total average cost of building a home to $701,758.

An additional factor that may impact how much you budget towards your home build is the Bushfire Attack Levy (BAL). Meeting bushfire requirements of BAL 12.5 to BAL FZ can add $16,000 to $73,000 to the cost of your home, while the highest risk category can cost up to an additional $227,000 to meet requirements.

Preparing a budget with these figures in mind will help determine how much you will need for a deposit on a loan. Typically a deposit can be 5 to 10% of the land’s purchase price. However, all deposits under 20% attract Lender’s Mortgage Insurance as well as additional upfront fees such as conveyancing, legal costs, government fees, registration and more.

At a minimum, you will need 8% of the land’s purchase price for your deposit and total fees. Depending on your timeline, you may consider three different types of loans:

Land and construction loans

A land and construction loan combines the two for those interested in an immediate build. This is often the best option due to reducing the period of time paying interest.

Land loans

Alternatively, you may consider taking separate loans if you cannot build immediately but would like to secure land for the future. Land loans typically do not specify a time limit for construction. However, owning land will incur annual land tax for all property owned above the land tax threshold.

Construction loans

If you already have land or are planning on taking out two separate loans, the second step would be a construction loan. Construction loans often have stipulated periods of time where you are required to complete construction. These loans are typically interest-only, meaning you only pay interest at each stage of construction. Once construction is complete, you then begin to repay the principal and interest.

If you’d like to learn more about the key factors that can impact your home’s overall build cost, read our in-depth article.

Stamp duty, sometimes referred to as Transfer of Land duty, is a state-imposed compulsory tax that pays for the transfer of property. Typically stamp duty will only apply for the land when purchasing the land and building separately. The total cost of stamp duty varies depending on numerous factors, including the state you’re building in, the property’s price, the type of property, your residency, and whether the property will be your main residence.

To find your stamp duty, it’s best to use your state’s calculator, such as the Victorian State Revenue Office Land Transfer duty calculator. Generally, you should budget 4% of your overall purchase price towards stamp duty.

With so many factors to consider, you may wonder how building weighs up against buying a home. According to finder.com, building is, on average, $129,105 cheaper than buying, with the average home build coming in at $701,758 with no concessions compared to $830,863 for an established home.

Building is also more affordable due to the single stamp duty requirement for land instead of purchasing an established home and lot with combined stamp duty. Stamp duty can be up to double the cost on existing homes when compared to a new build.

Additionally, there are many quality-of-life benefits to building a home designed for you, such as:

Customisation

Building your own home with a custom home builder will enable you to choose your fittings, fixtures and materials, guaranteeing the house will be to your taste.

Longevity

A new build guarantees that all plumbing and electrical are freshly installed and brand new, meaning you’re not taking on the burdens of a pre-loved home.

Energy-efficient

Building your own home means choosing sustainable features such as solar panelling, high-insulation windows and doors and energy-efficient lighting. Today’s homes are built to comply with higher efficient energy materials and construction methods.This will help reduce your carbon footprint and bill in the long term.

If the price variance and benefits weren’t convincing enough, you might also be eligible for further price reductions under the First Home Owners Grant.

Offered on homes up to $750,000, the First Home Owner Grant (FHOG) provides $10,000 to eligible applicants. To be eligible, the home must not have been previously sold or occupied. Additionally, you must have signed the building or purchase contract on or after 1 July 2013. Further eligibility criteria include the following:

• All applicants must be a minimum of 18 years of age at the settlement or completion of construction.
• At least one of the applicants must be an Australian citizen or permanent resident when the applicant becomes entitled to possession of the home (typically on the date of the settlement) or when the construction of the house is completed.
• At least one applicant must occupy the home as their Principal Place of Residence for a minimum of 12 months, commencing within 12 months of settlement or completed construction. The only exemption to this is any Australian Defence Force personnel, including current Australian Army, Air Force or Navy members.

Things that may impact your eligibility include the following, applicable to both you and your spouse or partner:

• Either of you has received the FHOG in Australia.
• Either of you owned a home or other residential property in Australia before 1 July 2000.
• Either of you has lived in a home in Australia for at least six consecutive months that either of you has owned or partially owned on or after 1 July 2000.

This criteria applies regardless of whether your partner is applying for the FHOG with you.

In addition to the FHOG, you might also consider a number of concessions available in Victoria, including the first-home buyer duty exemption, which may either exempt you from or reduce the amount of stamp duty you are required to pay. If you’d like to read more about the concessions available in Victoria, click here.

While there is lots of money to be saved, some unique hurdles can arise when building. One of the greatest challenges in construction is the sloping block. It’s generally advised that future builders purchase flat or gently sloped lots; however, a site with a truly challenging steepness can occasionally arise.

While these lots are typically cheaper on average, building on them requires a higher level of expertise and a keen understanding of the challenges involved. Because of this, the actual build cost is typically higher for sloping builds, offsetting any savings made on the lot, whilst the timeline may also be greater.

Fortunately, our team at Forme Homes has extensive experience building on sloping lots and developing these challenging sites into functional and gorgeous homes.

A professionally designed and built home on a sloping block can actually be advantageous in the future as these unique and complex builds attract more attention from potential buyers.

Unique lots typically require confident and experienced builders, but no matter the challenges, it’s in your best interest to seek out the best builders possible. Finding and choosing a builder you can trust with your future home can be difficult. However, there are a few different ways you might go about it:

Word-of-mouth

Seek recommendations from your friends and family who have recently undergone a construction project. Make sure to mention your future project to others; even if they haven’t recently built a home, they may know someone who has.

Explore the neighbourhood

Take a look at the houses in your neighbourhood. Some may have been freshly built or simply catch your eye. Consider asking for the builder’s details.

Industry contacts

Get in touch with the Master Builders and Housing Industry Associations and see if they can provide you with a shortlist of the builders in your area.

Once you have a few builders in mind, it’s essential to prepare some questions and criteria. Getting caught up in the excitement of things can be easy, but keeping a cool and critical mind when approaching builders is the key to finding the right one for you. Some questions you might ask include the following:

Do you have any previous clients I’d be able to chat with?

Get in touch with previous clients where possible to privately discuss how the builder performed and any issues they encountered.

Can I see your portfolio?

A portfolio of their work will give you an idea of how their design and construction style matches your taste. It will also let you quickly identify any issues or incompatibilities.

How much deposit will I need to pay?

Get a clear understanding of how much will be required to commence the job.

How many jobs are you working on at the moment?

Identify how much work they have on their plate, popularity is great, but you’ll also need to consider whether this will impact the attention they dedicate to your project.

Are all of your workers registered?

Ensure that they will do all work safely and comply with Australian Standards.

Are you insured?

Ensure that your builders have a certificate of currency for public liability insurance. This certificate confirms that your builder can meet legal claims for any injury or damage they cause. You should also check that your builder is eligible for domestic building insurance, which is required for any works valued at more than $16,000. You can check their eligibility here.

Buying land to build your own home is an extremely exciting venture that can be very rewarding with the proper research and planning. Approaching every step with a critical mind and a clear understanding of the important factors to look for will put you miles ahead of the game.

Be sure to remember some of the key points on land types, sizes, orientation and soil testing when approaching a new lot and consider how they can impact or benefit your dream home. Additionally, keep an eye out for government incentives and concessions that can help reduce the price of your future home. Finally, clearly communicate your vision and goals with your future builder to ensure you’re on the same page and that they can deliver the results you deserve.

If you’d like to explore what the team at Forme Homes can do for you, get in touch with us today for your free consultation.