COST: The key considerations pertain to stamp duty, legal costs and strata/body corp/owners corp, as well as the time cost of holding land and paying interest on the loan and council fees while you're waiting for your property to get built.
Anytime there is a change of ownership of a property, stamp duty will need to be paid. This is governed by the Office of State Revenue in each state. So when you invest in a house and land package, you will acquire the land first, which is when the parcel of land becomes yours. Then, when you build a house, you are not subject to any further stamp duty costs because the property has not changed ownership - you have simply 'improved upon the land'. Your stamp duty costs will be much lower overall because stamp duty is calculated based on the value of the contract.
For the period of time that you own the land, you will be responsible for council charges and conditions for the council in regards to maintenance. Most councils will insist upon vacant lots of land being well maintained to reduce the risk of fire and pests.
During this time, it is likely that there will be no income on the land, as rents are not being received. If you hold the land, the costs will be the cost of the loan, plus council, plus maintenance.
While you are building a property, there will be further holding costs while the property is being built, however, this is somewhat offset by the stamp duty savings.
The legal cost to review the contract will typically be less with a single contract as there is only one contract to review, not two. There will be less council information to review too, as this will have already taken place by the land owner.
TIME: There is a time penalty associated with building a new property as a home takes time to construct. The implications are a sliding scale of interest only payments on the loan as drawdowns are done at the various construction stages.
As well as, the lack of rental payments being made while the property is uninhabitable.
COMPLIANCE: The only time an investor has to worry about compliance is when investing through an SMSF structure. A fund will become uncompliant if the property is 'substantially improved upon'.
When you build a house on an empty block of land, it is substantially improved. However, there are moments during the process, whereby the vacant block of land may lose value. It would be easier to sell a vacant block of land than land that has a frame on it, for example. Given the government is interested in protecting your pension funds, it makes sense that there would be a consideration for this.
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