Buying land now, build next year! Land questions for Allura!

un4giv · Aug 06, 2014 12:08 am

Hi experts and all others alike!
First home buyers here and was thinking about purchasing a piece of land in Allura Truganina, VIC and build later next year. So just have a few questions regarding this matter and whether we should go ahead with it or not.

We plan to buy a piece of land and build towards the end of next year, the current piece of land we are looking at has settlement/title scheduled for JULY 2015. Is it worth while to lock in this piece of land to avoid having to pay more for this land if we were to buy it 1 year from now. Or will it not increase and we should just wait till next year before buying the land? We currently have more than enough to secure a land loan so that's not the issue. Just not sure how it works, I tried speaking to the lady at ING about this but she made it very confusing.

Also we got this printout from the Allura land sales office, regarding procedures in purchasing land. Correct me if I am wrong, but what I denote from this is that, in total we are forking out $10,000 and the rest is paid at title/settlement, so for this piece of land, we are looking at JULY 2015? I understand that I need to get a approval from the bank for the purchase of this land, but if what I just said is correct, does that mean I don't official owe the bank interest/repayments till the settlement/title date and all I've actually got invested would be the $10,000 deposit, and by doing this, it would lock in the price quoted for the land as of this date? PLEASE CORRECT ME IF I AM WRONG!!!

And from what I gather... After we get the titles, approach our lender and ask to increase our current loan for the construction?

Any information, links, tell me off maybe? Anything would be appreciated!

Thanks in advance!!!

Ponzu · Aug 06, 2014 7:36 am

Yes, you can lock in the land price by paying the deposit. It will be a contractual price and the contract should be subject to finance. You can start shopping around for a builder now to lock in those costs aswell.

You can expect land prices to increase when the train starts running through tarneit as there will likley be more demand in the area.

I would also look to get a full consttruction loan now rather than separately for the the two lots. The bank could decline you for the top up for any number of reasons. At least you know where you stand upfront the other way. Also you only pay interest on what you draw down untill you move in. Lets you save till next year.

Ponzu · Aug 06, 2014 7:45 am

Also if you're confused speaking to a bank, go to a broker. Theyll do all the confusing stuff for you.

Also titles can sometimes be delayed, so just think about that as well.

un4giv · Aug 06, 2014 12:11 pm

Ponzu

Yes, you can lock in the land price by paying the deposit. It will be a contractual price and the contract should be subject to finance. You can start shopping around for a builder now to lock in those costs aswell.

You can expect land prices to increase when the train starts running through tarneit as there will likley be more demand in the area.

I would also look to get a full consttruction loan now rather than separately for the the two lots. The bank could decline you for the top up for any number of reasons. At least you know where you stand upfront the other way. Also you only pay interest on what you draw down untill you move in. Lets you save till next year.

Ah, thanks for clarifying that Ponzu, we don't mind the titles being delayed either, just gives us more time to iron out what we want in our new house once we get that started. So basically nothing will be drew upon until we get the titles, so I guess my assumptions were correct. We are looking to lock in a piece of land in the next coming months! We have more than enough for the loan but I guess we only need to front the $10K for now to secure the land.

If we get a full construction loan, that means it will be drew upon for the land, then again for the construction of the house at a later date? Interest and repayments payable only on what we have drawn from that and not on the full amount we intend to borrow? That would make sense.

Thanks for your advice, we will definitely sit down with the onsite broker to clarify a few questions when we head back into the land sales office later this weekend in Truganina. Just wanted to find out more before we do so, don't want to appear clueless X_X

Ah, another question, LMI, will try to avoid having to pay that, but in the case that we do need to, how is LMI calculated? Is there like a standard formula? If we get a full construction loan, does LMI kick in when we hit the threshold for our 20% or will LMI kick in upon applying for the loan itself rather than what's drawn upon. I'm assuming at application?

Maggie10 · Aug 06, 2014 1:26 pm

Hi un4giv,

Be very careful if you are buying off plan and you are borrowing money for the purchase. If prices drop (and they very well might) you will still have an unconditional contract to purchase but you might not be able to get the loan (unless you have a very big deposit that can absorb the drop in value).

If you are going to sign a contract to purchase I would only do it if they will accept a subject to finance clause extended until say 5/6 weeks after titles, so that when titles come through you can apply for your loan and if you don't get it for whatever reason you can pull out and get your $10k back.

Best of luck,

MAggie.

Ponzu · Aug 06, 2014 3:11 pm

Maggie10

Hi un4giv,

Be very careful if you are buying off plan and you are borrowing money for the purchase. If prices drop (and they very well might) you will still have an unconditional contract to purchase but you might not be able to get the loan (unless you have a very big deposit that can absorb the drop in value).

MAggie.

Allura is a new estate, everything is "off the plan". There isn't much of a choice when you're building

Off the plan risks are higher for established suburb because there is a higher potential for significant fluctuation there. Growth areas have smaller variations in fluctuations.

For example buying an apartment off the plan in Brunswick East right now looks attractive, but there are about 9 developments along a 2km stretch of north Lygon st. The developments are massive. When they are all built, the vacancy rate could be very high, thus dropping the value of the property down. Also all the commercial lots in the bottom of these apartment blocks (of those that have been finished so far) are empty several months in.

In a growth area vacancy and fluctuations in price is dictated by different factors. A growth area is called that for a reason. However should prices begin to fall in a growth area, it would be because there there are better options in a different growth areas available, which is simply not the case at the moment. Truganina is next toTarneit, which will have an operational train in early 2015 (well ahead of the original late 2016 time frame quoted). East West link infrastructure will also improve the quality of life out there. all positively influencing factors.

In the end, buying off the plan presents risk where there are factors that have the potential to impact the value of the property. The property values out west in the certain parts of growth areas are going to be impacted in the positive end with major infrastructure works being implemented. The demand out there is driven by affordable housing. So until it become unfordable or the areas somehow become flood plains, then warning of off the plan nightmares without real context is just scare mongering. The alternative is to pay 30 grand in stamp duty for someone's home that they got to choose the location of, all the fittings and colours when the block down the street is the better option.

Maggie10 · Aug 06, 2014 7:29 pm

Ponzu

Maggie10

Hi un4giv,

Be very careful if you are buying off plan and you are borrowing money for the purchase. If prices drop (and they very well might) you will still have an unconditional contract to purchase but you might not be able to get the loan (unless you have a very big deposit that can absorb the drop in value).

MAggie.

Allura is a new estate, everything is "off the plan". There isn't much of a choice when you're building

Off the plan risks are higher for established suburb because there is a higher potential for significant fluctuation there. Growth areas have smaller variations in fluctuations.

For example buying an apartment off the plan in Brunswick East right now looks attractive, but there are about 9 developments along a 2km stretch of north Lygon st. The developments are massive. When they are all built, the vacancy rate could be very high, thus dropping the value of the property down. Also all the commercial lots in the bottom of these apartment blocks (of those that have been finished so far) are empty several months in.

In a growth area vacancy and fluctuations in price is dictated by different factors. A growth area is called that for a reason. However should prices begin to fall in a growth area, it would be because there there are better options in a different growth areas available, which is simply not the case at the moment. Truganina is next toTarneit, which will have an operational train in early 2015 (well ahead of the original late 2016 time frame quoted). East West link infrastructure will also improve the quality of life out there. all positively influencing factors.

In the end, buying off the plan presents risk where there are factors that have the potential to impact the value of the property. The property values out west in the certain parts of growth areas are going to be impacted in the positive end with major infrastructure works being implemented. The demand out there is driven by affordable housing. So until it become unfordable or the areas somehow become flood plains, then warning of off the plan nightmares without real context is just scare mongering. The alternative is to pay 30 grand in stamp duty for someone's home that they got to choose the location of, all the fittings and colours when the block down the street is the better option.

Sorry Ponzu I'm afraid I completely disagree with you. The housing market is not rational. It is driven, like so many other elements of the economy, by consumer sentiment. It is certainly true that improvements in infrastructure tend to drive property prices upwards, but it is not always the case, and local positives (like improved infrastructure) can be completely overwhelmed by macro-economic changes.

It is NOT scare mongering to advise someone to take sensible steps to protect themselves. I'm not even suggesting that the OP not go ahead with their buy - just that they negotiate a sensible contract to protect themselves so that if the worst happens they don't lose their savings.

It is a huge mistake to listen to the consensus and think 'she'll be right.' You should always analyse the black and whites of a situation, mitigate the risks and then take informed decisions.

I also don't agree with you at all that the value in established areas fluctuates more. That is not an accurate statement. And there are always options.

Ponzu · Aug 07, 2014 12:04 am

You need to read before you respond.

"Off the plan risks are higher for established suburb because there is a higher potential for significant fluctuation there."

Is an accurate statement supported by data from free and paid sources.

higher potential for significant fluctuations for off thr plan purchases, not the area.
graphed out, almost all new growth area suburbs in melb have low value fluctuations in the positive or negative over the last 5 years. The same cant be said for most established areas where fluctuations have been significant (albeit mostly positive). Were talking about the value of the swing.

sneakersss · Aug 07, 2014 1:34 am

If you like the piece of land then buy it now because it might not be available anymore in a year and the prices might go up. In my experience (I'm on to my second piece of land), prices in new estates tend to go up with each new stage release.

So, what happens with buying land is you would put a holding deposit down (say 1k). This takes the block off the market temporarily. You would then go back in a few weeks (or whatever timeframe agreed upon) to sign the purchase contract (sign it subject to finance). You submit the contract to a lender to obtain finance. If approved then you pay the rest of the deposit to the land sales people. After a few weeks you get your loan papers from the bank which you then sign and return. Then the loan is drawn down when settlement time comes. After settlement is when you start paying the loan back. Usually a month after or something like that. Depends on the details of your loan contract. You can also request for interest only payments for the first year or so if you wish.

You would then get a separate construction loan once you've decided on a house/builder and gone through with all the selections/paperwork. Once construction finishes you can refinance the land and construction loans into one loan if you wish.

The above is just from my experience and what I have gone through with both builds/purchase. Others might have done theirs differently.

Oh, and do try use a good broker if you can. Makes the process that much easier.

justheart · Aug 07, 2014 1:53 am

Exactly what sneakerss said .... ! Haha easy to understand none of that big words business ppl use lol.

un4giv · Aug 07, 2014 10:50 am

Maggie10

Hi un4giv,

Be very careful if you are buying off plan and you are borrowing money for the purchase. If prices drop (and they very well might) you will still have an unconditional contract to purchase but you might not be able to get the loan (unless you have a very big deposit that can absorb the drop in value).

If you are going to sign a contract to purchase I would only do it if they will accept a subject to finance clause extended until say 5/6 weeks after titles, so that when titles come through you can apply for your loan and if you don't get it for whatever reason you can pull out and get your $10k back.

Best of luck,

MAggie.

Thanks for the advice Maggie10, any and all advice is great at this stage as we don't know what to expect at all, as first home buyers I understand there are MANY factors involved and we are just trying to wrap our finger around things for the next few weeks perhaps months to make sure we understand everything we are going to get ourselves into!

That being said, when you say "buying off the plan" do you mean buying the land before it has been titled? So what I'm getting at is, if we sign the contract, pay the 1k holding fee, then the 9k making it total 10k to get the process going, say the land price is 250k, if land value drops by settlement date to 200k... We will need to pay the difference to the bank to get the loan for the land? So pretty much we won't be losing money, we just need to pay upfront a larger sum than agreed at the beginning?

We are VERY new to all this jargon, so please forgive my endless questions!

sneakersss

If you like the piece of land then buy it now because it might not be available anymore in a year and the prices might go up. In my experience (I'm on to my second piece of land), prices in new estates tend to go up with each new stage release.

So, what happens with buying land is you would put a holding deposit down (say 1k). This takes the block off the market temporarily. You would then go back in a few weeks (or whatever timeframe agreed upon) to sign the purchase contract (sign it subject to finance). You submit the contract to a lender to obtain finance. If approved then you pay the rest of the deposit to the land sales people. After a few weeks you get your loan papers from the bank which you then sign and return. Then the loan is drawn down when settlement time comes. After settlement is when you start paying the loan back. Usually a month after or something like that. Depends on the details of your loan contract. You can also request for interest only payments for the first year or so if you wish.

Thanks sneakersss! You basically interpreted this "procedure" contract to purchase the land in an everyday language lol, that's what I needed to know as well, I wanted to know when we actually need to start repaying the loan, but It's great to know that we have the option to defer principal repayments and pay only interest for the first year, allows us to save even more towards the construction loan deposit. Initially our house and land estimated to be about 450K, but after allowing for site costs, addons, extras etc, it's going to cost us something more like 550k for land/construction in Allura, Truganina. Hence we are trying to lock in this land with title/settlement expected for July 2015 (possibly delayed for few months more in most cases is what I've heard).

sneakersss

You would then get a separate construction loan once you've decided on a house/builder and gone through with all the selections/paperwork. Once construction finishes you can refinance the land and construction loans into one loan if you wish.

The above is just from my experience and what I have gone through with both builds/purchase. Others might have done theirs differently.

Oh, and do try use a good broker if you can. Makes the process that much easier.

I'm guessing same applies, when we apply for a construction loan it is also 20% to avoid the LMI? If we don't have the 20% by then, does the LMI only affect the amount borrowed for the construction loan not as a total inclusive of the separate land loan? Is LMI fixed or based on a % of the amount borrowed, I keep hearing about LMI but have no idea how it works.

Many thanks in advance! So far this thread is probably the best thing I've started all week lol

Ponzu · Aug 07, 2014 12:46 pm

off the plan commonly refers to a dwelling that is not yet constructed, but is available to purchase for an amount that is usually marketed as a special price or a major stamp duty saving. It has its benefits and risks as outlined earlier. This includes apartment blocks or townhouses that the developer is flogging before it they are built. By virtue of building in an estate, its an "off the plan" type situation, but I belive its the wrong application of the term. Its just called "building a house" in plain English. You have more input when you are building a house versus buying an apparent off the plan. Although just like in off the plan apartment buying scenarios, you dont know the true value of whether youre building will be the same value once its completed. The risk is teh same, the risk drivers are different.

As to fronting more cash if the value of the land drops - If you have a contractually agreed amount, that is what you pay. If the value of that land drops below the contractual price, you are stuck paying the contractual price. If you have to sign a contract to lock in a price it could work in both directions - Well or poorly. That is the risk that Maggie is alerting you to. You need to do your research and work out whether you're ok with this risk. In some cases it may never materialise, in others it could be catastrophic (especially if you were hoping on an investment). If you're building your forever home, this may be less of a concern for you. Just have a think about it and ask yourself what you want to be doing with the house in 7-10 years and again in 20-30 years. understand the planing for the area and the likely demographic now and in those periods. It seems like a lot of work, but its a bit of fun actually.

as to LMi and construction loan. yes - 20% to avoid LMI. 20% could be a lot more if you end up refinancing the land loan into the construction loan, which may be a request the bank makes as a condition of the finance. They may not. you need to have a conversation with them. Do your sums and speak to a broker to get the exact figures drawn up for you for review.

sneakersss · Aug 07, 2014 4:04 pm

un4giv

I'm guessing same applies, when we apply for a construction loan it is also 20% to avoid the LMI? If we don't have the 20% by then, does the LMI only affect the amount borrowed for the construction loan not as a total inclusive of the separate land loan? Is LMI fixed or based on a % of the amount borrowed, I keep hearing about LMI but have no idea how it works.

Many thanks in advance! So far this thread is probably the best thing I've started all week lol

Yes, the same goes for construction loans. LMI is based on a percentage of the amount borrowed. I don't recall what that percentage is exactly. And LMI would just be on the construction portion because at that point the land loan is separate.

NewBuilder2013 · Aug 07, 2014 5:34 pm

hi all.
im already here in Allura - and there is alot of work going on in the entire estate. with childcare facilites- the catholic school - then the town centre towards mid next year etc.... putting a hold now would be best - if you can afford to - and of course subject to finance. the sales office shouldn't have a problem with that - as the $10K deposit is a pretty big sign you are serious about buying land.

valuations are going to be like a yoyo - so be prepared for that, i too went through a broker as they have greater scope to offer you something more suitable to your circumstances.
if you are banking on moving here because of future schooling - be mindful that apart from the Catholic school which is being built now - the state one is still a proposed one only - meaning no funding whatsover on local or state levels. for many of us who bought some time ago - 2014 was the year it was supposed to happen.

un4giv · Aug 20, 2014 4:39 pm

UPDATE:
Hey everyone, thanks for all the information so far, it's been very helpful!

I just went for a consultation with someone from Henley and our extras come to about 70K, double storey (but I basically said yes to several options which we might not get, not worth adding, but looking at max 70K if we were to add all the options chosen).

As for the land, in Allura there is a section of land being released this Saturday and I am currently thinking long and hard about whether we want to lock it in, seems like a beautiful piece of land facing the reserve (40m wide river with trails on both side, WEST facing if that matters). I'm leaning towards signing for it this weekend but just want to make sure it's absolutely what we want and just want to think LONG and hard about it and whether anyone could give me a solid reason not to buy. From my perspective it seems like a good investment even if we don't build on it! I mean, you don't come across a block everyday that faces a reserve (is what I am thinking). Any body care to agree or disagree? It's quite a major decision and any reason not to buy should be ruled out. Sorry if I'm blabbing, the decision is driving me insane!

Will be discussing this with my partner over the next few days. Any feedback good or bad would be appreciated.

Ponzu · Aug 20, 2014 5:00 pm

un4giv

UPDATE:
Hey everyone, thanks for all the information so far, it's been very helpful!

I just went for a consultation with someone from Henley and our extras come to about 70K, double storey (but I basically said yes to several options which we might not get, not worth adding, but looking at max 70K if we were to add all the options chosen).

As for the land, in Allura there is a section of land being released this Saturday and I am currently thinking long and hard about whether we want to lock it in, seems like a beautiful piece of land facing the reserve (40m wide river with trails on both side, WEST facing if that matters). I'm leaning towards signing for it this weekend but just want to make sure it's absolutely what we want and just want to think LONG and hard about it and whether anyone could give me a solid reason not to buy. From my perspective it seems like a good investment even if we don't build on it! I mean, you don't come across a block everyday that faces a reserve (is what I am thinking). Any body care to agree or disagree? It's quite a major decision and any reason not to buy should be ruled out. Sorry if I'm blabbing, the decision is driving me insane!

Will be discussing this with my partner over the next few days. Any feedback good or bad would be appreciated.

sounds like a good spot. at least you will have nice views every time you walk out the front and from any areas on the second floor at the front of the house.

if it feels right, go for it i say

un4giv · Aug 20, 2014 5:51 pm

Ponzu

sounds like a good spot. at least you will have nice views every time you walk out the front and from any areas on the second floor at the front of the house.

if it feels right, go for it i say

Hi again Ponzu! Seems like your very active on these forums haha

We were originally looking at lands 14x28m but would like a bigger backyard and this option came up being 14x32m, although we wouldn't really mind the 14x28m anyway. It does cost an extra 25K but I personally like the fact that it faces a reserve so it will be quite peaceful and just hoping for better resale value in the future even though I do plan to live in it FOREVER, am not 100% sure about the traffic along that street, will have to look into it more.

Is there any downside to living opposite a reserve being the 40m wide river made up of trails on both sides, not sure whether the lady was just trying to sell, but she mentioned that these LOTs are listed as premium LOTs and are always on high demand. Is she trying to sell or is that a correct assumption?

Sorry in advance but I will be asking similar questions ALOT in the next 2-3 days leading up to the sale so please don't give up on me! >.<

Ponzu · Aug 20, 2014 7:04 pm

Not having neighbors across the road and a nice reserve is definitely a nice feature. But peace and quiet? What about your neighbors on the other three sides;)

At this point I think youre proba ly overthinking it. If you like the are and the block and want to live there for a long time put a deposit on it.

My only issue with a 40m wide rivver out the front would be safety of small children if you have any or are planing on yaving any. Need to childproof all your exits to prevent the potential drowning. Also is 5he river moving? Because if its still you might have a lot of mozzies in the summer

Ponzu · Aug 20, 2014 7:09 pm

Although im pretty sure the creek that runs through trugganina isnt 40m wide. Have you been out to see it? Or did you mean 40m of the lenght runs along the street?

un4giv · Aug 26, 2014 5:13 pm

Ponzu

Although im pretty sure the creek that runs through trugganina isnt 40m wide. Have you been out to see it? Or did you mean 40m of the lenght runs along the street?

I haven't seen it, but the sales lady said it appeared to be that size when she went to take a look.

Anyway, we haven't gone with it yet, awaiting more releases! The LOT we were actually interested in was sold to someone who registered before us! The one next door to that LOT was about 15m2 diff and was asking for extra 11K so we didn't think that was worth it. Let's see what future releases have to offer and go from there! At least we are moving up on the waiting list!