Buying Property For Dummies Page 15
If you have a big job that involves a builder and decide to rent while you’re renovating, you can add a penalty clause to the contract to the effect that the builder is obliged to pay the cost of extra rent if the job isn’t completed by the scheduled date.
Staying put during renovations
The advantages of staying home during renovations are that you don’t have to pack for a move and you can keep a close eye on progress. You soon know if the electrician doesn’t turn up for three days in a row, holding up the rest of the work. At each stage of the work, you need to make decisions; being able to discuss progress on-site with the builder, even if you only have 15 minutes in the morning before you rush off to work, makes life easier for everyone.
Being practical and staying serene during renos
Staying home during renovations doesn’t have to be unbearable as long as you’re flexible and resourceful. We used a camp-stove, a microwave and our laundry sink while our kitchen was being renovated. Later, when we renovated our bathroom and laundry, we visited friends and neighbours to use their shower, and hooked the washing machine up to an outside tap.
Coming back each day to a home that has improved even just a little is an exciting experience. Even if you’re not doing the work yourself, you get to be part of the process of creating a new space.
Funding Your Renovation
Unless you’ve made enough extra payments into your mortgage to be able to redraw on the loan to fund your renovation, you need to apply for a loan to fund it. The way in which you fund your renovation may depend on the amount of work you want to have done to your home.
Renovations can fall into two categories:
Small renovation: If the renovation is a small one — say, less than $25,000 — you may be able to extend your home loan, as long as you have built up enough equity in the property to keep your loan-to-value ratio below 80 per cent. (If the ratio goes above 80 per cent, you have to pay mortgage insurance, which can add several thousand dollars to the loan.) You could also obtain a personal loan to fund a small renovation, although interest rates are higher on these than on home loans.
Large renovation: Getting funding for larger-scale renovations probably requires refinancing your existing loan, which means closing down your existing loan and re-establishing a new loan at the higher level. Your lender may need to revalue your home to ensure that you have enough equity to cover an extension of the loan.
Lenders usually also need to see detailed drawings of your plans, as well as evidence that you have the necessary building and planning approvals. In addition, you may need to pay establishment fees as well as valuation fees to refinance the loan.
Given that you may need to make progress payments to your builder or contractors, you need to organise how to make these regular scheduled payments beforehand with your lender. Some lenders offer specific construction or renovation loans that have a provision to make progress payments built in. (Chapter 10 has detailed information on obtaining a home loan.)
Chapter 8
Nice and New
In This Chapter
Looking at homes on a housing estate
Deciding whether to take the house-and-land package
Checking out display homes
Building your dream home
Having your home built by a project builder
Exercising caution with off-the-plan apartments
Property is one of the few things that most people are happy to buy second-hand, even if they’re not averse to the idea of a newly built home. If you want to live in something that is completely and utterly brand new, rather than fit into someone else’s hand-me-down, you have a couple of options, both to do with location.
Families buying house-and-land packages or project homes that deliver a spanking new dwelling and an extremely comfortable lifestyle for an often quite reasonable price are rapidly populating the fringes of the cities and many regional towns.
Closer into the centre of town, you may be able to find newly built ‘in-fill housing’, generally in the form of townhouses or units. Move further into the inner suburbs and the city centre and you may be in the market for a flash new apartment in a high-rise, multi-unit development.
In all of these cases, you’re relying on what’s known as a volume builder or project-home builder to build your new home. As the names suggest, these are builders who mass-produce dozens and sometimes hundreds of similar houses or units, and are therefore able to keep prices to a minimum. That means you generally have a limited range of designs and finishes to choose from, although you can sometimes get variations for an additional cost. You also have limited control over the actual building process, so you need to make sure you’re happy with your arrangement with the builder before you enter into a contract.
In this chapter, I discuss what you need to look out for to make sure you get what you want from a house-and-land package, or a project home. I also look at how not to get burnt buying a unit or apartment off the plan.
Buying Into a Housing Estate
The concept of the housing estate goes back to the early part of the 20th century when entire Australian suburbs were created by developers who mass-produced homes for families. AVJennings is a particularly famous developer of housing estates and has become synonymous with the house-and-land package, although today dozens of similar developers and project-home builders are available to choose from.
The advantages and disadvantages of a housing estate include the following:
Advantages: Buying into a new housing estate can be a relatively low-cost way of getting into the property market. Because the land, usually on the fringe of the city, is relatively cheap and the houses are constructed by volume builders, developers can keep prices down. As a result, you often end up with a level of luxury and a size of house that first home buyers who want to live closer to the city centre can only dream of.
Disadvantages: One major downside of buying into a new housing estate is that you may end up living a long way from your place of work and also from your family and friends. Because the area is just newly developed, it may suffer from a lack of facilities, especially public transport, and it can be several years before trees and shrubs grow large enough to soften the sea of roofs.
The size of the block can also be very small compared to the size of the house being built, which means that the building can take up most of the land. Sometimes driving to the outskirts of the city to find that the backyards of the houses built there are smaller than the backyards of properties in the supposedly more cramped inner suburbs is rather depressing.
Checking out an estate
When you’re looking for a home in a new housing estate, remember to apply the same criteria as if you were looking for an established home anywhere else, particularly when it comes to the location. For your home to increase in value over the years, it needs to be in an area that is attractive to other home buyers. Avoid estates that have been poorly planned and are far away from industrial and retail centres.
When you’re looking at a new housing estate where some of the homes have already been built and construction of the rest of the estate is evidently going to be under way for some time to come, envisaging how the whole estate is eventually going to look and work as a community isn’t easy.
Brochures and marketing materials, as well as display homes, give you some idea of the overall look the developer is aiming for. You can also ask the consultant working for the development company if you can look at the long-range plans for the community, such as plans for schools, shops, public transport and other facilities. Double-check with the local council as to whether the developer’s plans have been approved. You may also want to contact the local road traffic authority to find out about any planned road developments for the new estate.
Landscaping is an important part of any housing estate. The faster the barren streetscape is softened by trees and garden greenery the better. Many new developments sell blocks of land with strict guidel
ines (imposed either by the developer or the local council) that dictate how home owners should plant out and landscape their front yards. While this approach may be restrictive, it does ensure that the area has a pleasant and consistent landscape in years to come.
Look for a housing estate located near a local attraction, such as a national park, a reserve, a beach or water. If the marketing materials make much of the rural setting, do some research with the local council to find out whether the vista of fields is likely to be built out by further housing in years to come.
When you’re assessing a housing estate for its suitability, take the following things into account:
Child care facilities
Entertainment, especially for younger people
Libraries
Medical facilities
Parks and playgrounds
Public transport
Restaurants and cafes
Schools, including pre-schools and kindergartens, primary and secondary schools
Shopping facilities; not just a general store, but easy access to good supermarkets and other speciality stores like newsagents and chemists
Sporting facilities, such as sports grounds, gyms, tennis courts, swimming pools
Universities in the area
Be careful of buying into an estate that only has one exit onto a main road. You’re likely to spend your mornings banked up with everyone else at the single set of traffic lights trying to get out of the estate to work, school or the shopping mall.
Studying the developer
Most housing estates are created by a developer, or sometimes a consortium of developers that may include a state government body as well. They then sell blocks to individuals and may sell or outsource particular blocks to other project or volume builders to build individual homes. The developer draws up the master plan for the estate and determines the landscaping and what kinds of amenities are provided. Sometimes these landscaping and amenities guidelines are developed jointly with the local council.
Each developer may have a particular style of development and style of homes. When you’re looking at a particular estate, it might be worthwhile doing some research on the developer. Find out how long they have been in business and how many house-and-land packages they have sold. Visit other developments they have been involved in. Drive around and think about whether this is the kind of place you would be happy to live in.
Developers almost certainly have a website that gives background to their projects and their developments. Naturally, the information on a developer’s own website tends to be rose-tinted, so you may want to conduct further investigations, such as doing an internet search on the company name. You may find out if there has been any bad publicity about any of the developer’s projects, especially regarding court cases in which the developer was involved. If the developer issues annual reports, you may want to obtain the latest report to get further information on the company.
You can also ask the developer to give you the names and phone numbers of three clients that you can contact to ask how satisfied they have been with the service they received and the quality of the work that was carried out on their homes. While the developer may push only very satisfied customers your way, you’re at least given an opportunity to ask them questions and get a sense of whether they were really happy. Talking to owners of properties at least five years old is likely to give you a better insight into the quality of the buildings and their finish. Cracks in the walls, for instance, may be evidence of faulty footings, while peeling paint or rickety windows may reveal poor quality materials and shoddy work practices.
The House First or the Land?
As soon as you decide on a housing estate, you have a couple of choices as to how you get the home of your dreams built. You can either buy the land first and then get a project-home builder to build a house on your land, or you can choose a house from the range offered by the developer, who ordinarily offers you the choice of a couple of different blocks on which to build the house. This option is usually known as a house-and-land package, and is generally the cheapest option.
Getting the land first, then the house
If you buy land from the developer and then have a house built on it, you usually have to pay a 10 per cent deposit on the land and then pay the balance in full before the builder can start building your home. While the house is being built, you probably also need to make progress payments to the builder at various stages of construction.
You generally have to choose from a selection of builders who have been approved by the developer and who build houses from an approved set of designs. Even when you are able to engage your own builder, many land estates have design guidelines as to the styles, materials and finishes allowable.
The advantages and disadvantages of this approach are as follows:
Advantages: The upside of buying land first and then building the house is that you only have to pay stamp duty on the undeveloped land and not on the house. Why? Because you only pay stamp duty on the transaction, not on the ‘improvement’ you make on the land by building the home. The savings can be considerable; in Victoria, for example, you may pay only around $3,800 stamp duty for a piece of land that cost $150,000, but if you buy a house-and-land package worth $350,000, the stamp duty rockets up to as much as $14,000. (This does not take into account the grants and bonuses you may be eligible for as a first home buyer.)
Disadvantages: You can end up with two mortgages, one for the land and one for the house itself. Sometimes, though, you can negotiate with the developer to allow you to delay your payment on the land until you start building so you can roll the loans for both land and house together into one mortgage. You then also have to pay your full whack of stamp duty (refer to ‘Advantages’).
By engaging a builder yourself to build on your land, you take more responsibility over the building process than if the developer engaged the builder to build on their land. (See Chapter 9 for information on building your own home and dealing with builders.)
Taking the package
The good thing with the house-and-land package approach is that it generally involves a fixed-price contract, so you know exactly how much you’re up for and when you need to pay the balance. The other positive is that after you pay your deposit, usually around 5 per cent, you generally don’t need to pay any more until the home is built. This can be a good way of buying the home if you’re paying rent.
The downside to this scenario is that you have to pay stamp duty on both the land and the house. The developer may also add a margin to the cost of the package to cover the interest costs on the land and the building materials. A house-and-land package may therefore be a more expensive proposition than buying the land first and then having the house built on it, but that difference is balanced out by the fact that the final purchase payment of the house and land is deferred until you’re ready to move in.
Looking Behind the Facade of the Display Home
Get ready to spend your weekends nosing around display homes. Display homes not only give you a sense of how a particular floor plan looks and how the space works, they should also give you a sense of the quality of the materials and the quality of the builder’s work.
If you’re planning to buy a house-and-land package in a particular estate, visit the display homes there. These homes have probably been built by a number of different project builders that have been contracted by the developer of the estate.
If you want to buy the land first and contract a particular volume or project builder to build your home, ask the builder where you can visit their display homes. Most builders have display homes dotted around the suburbs, either in their own display villages or within new housing estates.
Display homes you visit are often the top of the range for that model. If you want to have a look at lower-cost homes, check the builder’s website or brochures. Lower-cost models may be smaller and have fewer rooms; the quality of finishes and materials may also be lower than t
hose that you see in the display homes.
While in some cases you can ask to have variations made to the standard floor plans and finishes, be aware that this could add quite a bit to the total cost. Volume builders can keep costs down because they’re mass-producing more or less identical homes, and if you want to make a lot of changes they charge accordingly.
Knowing about inclusions