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5 Reasons Why Investment Sales Are Shifting From Units To Land

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By Richard Mulligan from Platform Properties. 

With fears of oversupply in unit markets around Brisbane and other Australian markets, many marketing groups have been turning to house and land to meet their clients’ investment needs, however there are some major drawbacks and positives that Selling Agents should be aware of when making the shift into selling house and land.
1. Better perceived value for clients:
Clients still have a love for house and land and there are a few headline reasons for this. The big ticket items are:

  1. no body corporate fees
  2. less transfer duty (as transfer duty is only paid on the land not the build)
  3. larger properties which are more family friendly, and
  4. supported by the old adage of “land appreciates, whilst buildings depreciate”

[Related article - Buying Houses Vs Units]
2. Better payment terms for Selling Agents
As the build time of a house is typically 18 weeks, the Cashflow cycles for Selling Agents is much stronger than a typical 1-2 year delivery period for townhomes or apartments. Typical payment terms would see 50% of commission paid on unconditional with the balance paid on land settlement or at various stages of the construction as finance drawdowns occur. This significantly enhances the cash flow of Selling Agents and allows more investment into seeking new clients and creating more sales faster.
3. Fixed price contracts
It is important to ensure that builders are using a real fixed price contract for construction to avoid your client being hit with any variations post settlement, as nothing will help you lose a client more quickly.  Some builders will promise a great ‘headline’ price however hidden within the contract they will include Provisional Sum or Provisional Cost items for slab and earthworks for example to shift these risks away from them and onto the client, sometimes knowing full well that these works will cost more once they hit the site.

Others will also seek to reduce accountability to the client by reducing liquated damages figures to negligible amounts and by stripping the house back to a very basic finish, excluding items like wardrobe fixtures and fittings, letter boxes and landscaping to name a few. Some will use prefabricated kitchens from China which look great upon installation, however the durability in a rental property can be questionable and when calling upon a warranty one year down the track, the manufacturer in China often wants nothing to do with it.

It is important that your builder is well established with a great track record and has a robust maintenance and defect rectification team so that your client gets a great finished product ultimately leading to repeat sales and more referrals.

Draw backs

Sometimes developers can ‘bond’ up remaining works in order to gain earlier registration of titles and affect early settlements prior to completion, however this can sometimes cause delays in house construction start dates as the builder waits for utilities such as power to be complete, gain access for soil tests or other site works that impede start timing. Expect up to a month for site access, anymore that this is taking advantage of the client and the best resolution is to complain to local Council.
4. Valuations & Creating Long Term Client Value
Whilst valuations can fluctuate wildly depending upon the firm valuing in both apartments and house and land, with house and land there are various controls which can be put in place to ensure a positive outcome. Our experience has shown that larger homes between 200-215sqm tend to yield a stronger result as overall construction price per square metre decreases with the increased size of the house and rent-ability improves. Currently build costs should typically be between $1,100 per sqm and $1,350 depending on the slope and shape of the land and also compliance with any building covenants in particular estates. Land values are usually not an issue, however as developers increase prices across later stages, valuers can sometimes lag in catching up to the market. It is therefore important to educate your clients on potential valuation shortfalls in advance to avoid unexpected surprises.

To maximise resale value for the client, selling agents should ensure the design, street scape, and floor layout are liveable and appealing, as consideration should be given to who will buy the property once your client decides to sell – as buyers will not pay a premium for an inferior product.
5. Master Planned Estates
Master Planned estates delivered by major ASX developers are typically considered superior product to smaller infill subdivision as the owner occupier to investor ratios are more stringently controlled and usually include more local amenity and infrastructure such as parks, tree lined streets and completed high-spec display homes. These estates also have a design covenant to ensure a ‘minimum standard’ of house design, streetscape, landscaping and layout of the lot and ongoing controls to ensure future owners comply with the rules set for the estate.

 

About the Author:

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Richard Mulligan is a Project Marketing Professional at Platform Properties who supply off market stock to selling agents and are experts in the South East Queensland House and Land market.  They are the exclusive selling arm for GW Homes and many other builders and work closely with ASX listed developers. Richard formerly worked in the Real Estate Division of one of the Big 4 Advisory Firms.

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Article originally posted at: https://https://theurbandeveloper.com/articles/5-reasons-why-investment-sales-are-shifting-from-units-to-land