The Difference Between House and Land and Off the Plan
Today I want to explain two common terms in this industry that refer to different approaches to buying new properties.
House & Land
When buying a house and land package, you first buy and settle on a piece of land. Your mortgage is calculated on the land only, to begin with.
Then, you take out a second loan, which is a construction loan. You engage a builder to build the home. Payments are made to the builder in six stages, as the build progresses.
This is why with a house and land package, you have two contracts: one for the land, and one for the house.
When you purchase off-the-plan, you have one contract that encompasses the house and land component together. Initially, you will pay the 10% deposit, which is held in a trust account. When the builder is ready to proceed with the build, they can take the contract and evidence of your 10% deposit to the bank and request the entire loan amount to begin building.
The reason for this structure is needed is because townhouses and apartments share facilities and walls. Progress payments on a building with multiple parties owning different sections would not make sense. This is why the single contract, off-the-plan approach is sometimes necessary.
Once the property is complete, the apartment/townhouse owners settle and purchase the property in one day. This means that their mortgage is to the value of the complete purchase amount, rather than progressively increasing throughout the build stages.
The key difference?
When you go with house and land, you own the land at the beginning of the process and then build the house. In off the plan, you own nothing until the end of the process and then you settle in a single day on the whole lot.
Happy property investing,
Daimien J. Patterson