The Return Perspective:

While investors purchase many blocks of land or multiple house in a particular development, the return can be very attractive in the short or medium term. In this scenario, investors often are able to negotiate conditions with builders in terms of finance methods and settlement time frames.

A single purchase with cost-effective building strategies also produces good short-to-medium term return (10%+ in the sustainable market condition).

The Advantages:

While the land developers and property sellers are the ones who actively promote this type of strategy due to their vast interest in the development of the sites, the investors become the first proper owners of the build, therefore enjoying the medium or long-term capital growth benefit.

When buying a house & land package, the builders/developers often have organised the construction loan documents such as a fixed price quote, house plan, full building specifications etc. required by the lenders. This offers significant convenience to the investors.

The Potential Risks/Difficulties:

An investor can effectively apply this strategy to the PPR to avoid a capital gains tax; however, if repeated frequently within a relatively short period of time, the Australian tax office could re-assess your capital gains tax if they determine the investors' primary reason for doing so if for income related purposes.

Investing in a boom market yields high growth. When the market is growing at a more moderate pace, this is not a good short-term strategy due to the high holding costs.

Since the global financial crisis, the lenders' approach to construction lending became much more conservative. Some do not lend for construction at all. In general, the lending rules for construction loans are getting stricter.

Investors who purchase vacant land only (wish to develop it later) should keep in mind things such as zoning, water, sewerage, soil tests, drainage/flooding issues, as these may add substantial costs when it comes time to build.

A property has the potential to be valued less than the actual cost of the construction, especially in cases of brand new estates and limited comparison sales in the area. However, the rated value of land is not a solid indication of land value, and the market value is often higher.