Opinions on Buying a Plot of Land

mange on 11/07/2022 - 12:52
Last edited 11/07/2022 - 12:57

Hi all

About 4 years ago we've built our first house however we have decided that we want to build another one in a bigger blocker within 4-7 years. We live in regional QLD in an area that has been growing quite a lot in the last few years and the market hasn't shown any signs of slowing down. In fact, there's a shortage of houses in the region and rentals are almost impossible to find.

We have found a block 5 minutes from where we currently live in a new estate which ticks pretty much all the boxes. We are considering buying the block now and holding it for a few years until we are ready to build.

I've put a list of the pros and cons of buying right now but would love to hear what other people have to say. Not really looking for financial advice as we can comfortably afford the block but it's always good to get different points of view in regards to whether or not this is a good idea.

Pros:

Close to perfect block for our needs
Great location
Buying now and building later will give us time to see the Estate grow and judge whether or not we really want to build there.
Considering how much property has grown in the region, could be considered an investment if we decide to sell it down the track

Cons:

Pay council rates for a good 5-7 years
Expenses for maintaining the block tidy
The market could go down in 5-7 years' time (although very unlikely)
Investing the deposit money + repayments could have similar results in comparison to how much the land could increase in value
We could end up finding an even better block

Home & Garden

Comments

  • bohn on 11/07/2022 - 13:02
    +3

    FYI (don't let it put you off, but just so long as you know about it)

    The ATO will allow the home to be deemed your principal home for CGT purposes (no capital gains tax) provided you move in within 4 years from the time of the original purchase.

    So if you buy a block of land and then build a home to live in, you have up to 4 years to complete the construction and exercise the right to call it your principal home and avoid any CGT if and when you sell, under S.118-150 of the ITAA 1997.

    https://www.umbrellaaccountants.com.au/main-residence-4-year…

  • MrHyde on 11/07/2022 - 13:03
    +7

    Have you checked if there are any restrictions on the block. Many new estates have restrictions that house must be built within 2 years and such.

    5-7 years should be ok for the current building crisis to pass and building costs to hopefully come back down to reasonable levels. However, paying rates; land tax; maintenance, etc, etc is a big waste of money and its not even tax deductible.

    • mange on 11/07/2022 - 13:19

      yup, there is a covenant in place but there are no time restraints in relation to when you will need to have construction completed and have also confirmed with the seller.

    • EightImmortals on 11/07/2022 - 14:18

      Do we pay full rates on vacant land?

      • MrHyde on 11/07/2022 - 15:27

        In VIC, rates are based on Capital Improved Value - which is land + buildings. So, rates would be lower on vacant land as opposed to land with house on it.

  • SmiTTy on 11/07/2022 - 13:09

    My opinion….
    If you've budgeted for all the expenses to purchase and keep the block, and you have the cash flow to support that purchase, and it ticks all your boxes - I would buy it.

    Sometimes having the right property at the right location which you want to live at, is not a financial decision (assuming u can afford it) - it's an emotional decision. And that's perfectly ok… (again, as long as u can afford it)…. If you wait 5 years, you may or may not find a better block. But you'll regret it if u don't.

    I would say it comes down to how much u like the location and land. If it's a "yeh that looks pretty good and I can live there", I would probably wait. However if it's more of a "this is a fantastic block, it's the perfect size and it's exactly where I want to live", I'd go with it

    • bohn on 11/07/2022 - 13:21
      +1

      Sometimes having the right property at the right location which you want to live at, is not a financial decision

      I agree with this. If it is their dream block, then just buy it.

      However, OP said:

      Buying now and building later will give us time to see the Estate grow and judge whether or not we really want to build there.

      Doesn't really sound like their dream block.

      • mange on 11/07/2022 - 14:59

        it's definitely not our "dream block". It's a pretty good block in a pretty good location. Nothing more.

  • Brian McGee on 11/07/2022 - 13:16

    A con could also be land tax if QLD do such a thing, I know NSW you get slugged this along with rates (for what?) when you own land that isn't your primary residence.
    In NSW you can ask for it to be excepted if you intend to build, but can't delay forever.

    • mange on 11/07/2022 - 13:21

      Thanks, I will do some research on the topic

  • faithdealer on 11/07/2022 - 13:18
    +3

    "The market could go down in 5-7 years' time (although very unlikely)"

    Such an Aussie statement lol.

  • Drakesy on 11/07/2022 - 13:20

    Yolo it.

    I mean rising rates and housing prices are generally inversely related. So just make sure you're ok holding for up to 10+ years if a recession really takes hold (The Japan house price index still hasn't returned to pre-recession levels in 1990. - Australia still hasn't had a correction in 30 odd years)

    The last thing you want though is to take a fair hit on the land value (which if its on the fringes can be highly volatile) and it plunges you into paying exorbitant LMI fees along with locking up the money as you don't want to take a loss on it while paying rates and having zero rental return.

  • Duckie2hh on 11/07/2022 - 13:58
    +1

    I would only buy the block of land if you are serious about immediately building on it. Holding empty plots of land is not great from a tax point of view.

    • mange on 11/07/2022 - 15:00

      it's not great in the sense that you can't claim any expenses you have maintaining it or are there other reasons?

      • Duckie2hh on 11/07/2022 - 15:19
        +1

        That (no deduction), as well as a target of dump site…. Not sure how often it happens in regional.

        • bohn on 11/07/2022 - 15:20
          +3

          Happens more often if left unmaintained for long periods.

  • Rumbaar on 11/07/2022 - 16:25

    The estate I'm in, the 'value' of a block of land has gone up 100k+ in 3 or so years (maybe more). So if you feel the value of land will be more than that after the period you by in line with the cost in maintenance. But that's speculation. Would the value of the land in a basic savings account be more of an investment and purchase a block in 4-5. But then again, finding the perfect location is the key.

  • Euphemistic on 11/07/2022 - 17:42

    If you can afford it and the block suits what you expect to want when you build then you should buy.

    In the event you find another block, you either sell this then buy the other - or end up with two blocks for a while.

  • mange on 13/07/2022 - 11:53

    Thank you all for your thoughts.

    I've spoken to some friends that have been living for a long time in the region and they all think it's a good idea and it's very possible that in 5-7 years time the land will be up by at least 40% which should easily cover the interest paid and any maintaining costs in case I decide to sell it.

Login or Join to leave a comment
Login Join