29 October 2019
Buying land. Is it a wise, or weary, investment?
We all want our own piece of land, some more literally than others. But, did you know that buying a piece of land is different to purchasing an existing or turn-key property? In our latest blog, we look at the pros and cons of purchasing standalone land, and how to make it work for you.
Buying land, is it worth it?
Whether you’re a first time buyer, or a savvy investor buying a piece of raw land to hold in your property portfolio there are, of course, pros and cons.
First, the cons. When you own a piece of land with nothing on it, it doesn’t provide you with an immediate return, which is why it is often considered a ‘weak investment’. But, if you’re purchasing the right piece at the right price, the long-term prospects could outweigh the myriad of problems created by owning the wrong rental property.
Raw land is a ‘hands-off’ investment where you don’t have to ‘do’ anything. As long as someone else can build on the land at some point in the future, it can create an opportunity for the right person.
Restrictions on purchasing
Before riding off into the sunset and going unconditional on a piece of land, you’ll need to check for any covenants. This will place restrictions on you and contractual obligations under the land transfer agreement that you will need to abide by, including building.
If you’re purchasing vacant land within 50km of a city boundary with connected utilities, you will require a 20% LVR. And there are further restrictions. For your borrowers, you need to intend to erect a dwelling within five years, while demonstrating a financial capacity to accommodate this.
For a lifestyle property, aka properties outside of subdivisions and urban zoning, you need to be prepared to pay 20 – 50% of your deposit up front, which will be determined by the locality of the land.
Using your KiwiSaver to buy land
KiwiSaver makes the dream of homeownership a little more accessible. When applying for the HomeStart Grant, which entitles you to $10,000 per applicant when buying land and planning to build, you need to provide proof you’re going to be building on the land at the time of purchase by doing one of three things:
- You’re able to provide proof of a fixed price contract, showing the cost of the building and projected completion date
- Your signed agreement for the placement of a relocatable home
- Funding for the construction of a new home
There are also caps on the total of both the land and construction of the house, $550,000 within Hamilton City, or $500,000 in the surrounding areas.
It’s important to tread carefully when buying land but, by knowing what options are available to you, you can be on your way to owning your very own piece of the pie. In the interim, our advice to anyone looking to buy land:
- Get a conveyancing lawyer organised
- Organise a mortgage broker to help you work out how much you can play with
- Contact Lugtons to start your search
If you’re ready, or looking to purchase, talk to one of our trusty real estate salespeople, to understand the options available to you.