What are the benefits of investing in land?

• The benefits of investing in land can be substantial but only if you play your cards right.
• Compared to other investments, land doesn’t need much of your involvement.
• Competition is pretty low so you can get a good deal more easily.
• You can also choose what you want to do with the land.

Who would benefit the most from investing in land?

• Home building companies can benefit immensely from investing in land.
• Long-term corporate land investors with diverse portfolios of land can benefit a lot as well.
• However, investing in land is usually high risk for small investors.

Will the bank approve my loan?

• It all depends on the location, access to utilities and services, zoning and land size.

Things to watch out for when investing in raw land

• Location and zoning: Land inside or around major cities and regional centres are relatively easy to finance.
• Size and shape: Large pieces of land take longer to sell.
• Infrastructure: This mainly includes road access and availability of public utilities such as water and electricity.
• Your financial position: Raw land isn’t usually a good choice if you’re looking to re-sell for a quick profit.
• Property history: A cheap piece of land close to a regional centre may seem like a good deal.

How to invest in raw land?

• Holding land: You can invest in land by simply holding on to it.
• Handing it over to a developer: You can buy land and then hand it over to a developer.
• Renting it out: A vacant piece of land can be rented out to a business or household.
• Building: You can develop the land yourself and sell it on a later date.

Do I qualify for a land investment loan?

• Deposit requirements: Many banks have reduced their maximum Loan to Value Ratio (LVR) on investment loans down to 80%.
• Genuine savings: Genuine savings are basically savings you’ve held or collected in a bank account for three months at least.
• Equity: You may need to have equity in another property if you’re borrowing more than 90% LVR.
• Good credit history: Banks prefer borrowers with little to no bad credit records.
• Stable employment: Banks will want to see that you can afford the investment loan.

How much can I borrow?

• Up to 2.2 hectares (5.4 acres): Up to 95% of the property value.
• Up to 11 hectares (27.2 acres): Up to 95% of the property value.
• Up to 60 hectares (148.3 acres): Up to 80% of the property value.
• Up to 97 hectares (240 acres): Up to 80% of the property value.
• Over 97 hectares: On a case by case basis.
• Commercial farms: Up to 60% of the property value.
• Guarantor loans: Borrow up to 100% with select lenders only.
• If there’s a house on the block: If there’s a house on the land already, then you may be able to borrow 95% of the property value for properties up to 50 hectares in size.
• If you’re planning on building, you can take out a cost plus construction loan.

What will the lender assess?

• Land size: The larger the land, the fewer the number of people who are interested in buying it.
• Location: Land inside major cities and regional centres can be financed quite easily.
• Access: The land must have direct access using an all-weather road.
• Services: The land must be within range to be connected to the electricity grid without excessive costs.
• Zoning: Land zoned rural or rural residential can be considered but industrial, commercial and farm/agricultural zoning is case by case.
• Land use: The land should be used for personal or investment purposes, not as a farm.
• Intention to build: Many lenders consider someone who’s building on the land right away or within a year to be a lower risk.

Why do banks and lenders allow land banking?

• When it comes to residential land, banks are highly against land banking.
• When it comes to vacant commercial land, some lenders will allow land banking since you’re borrowing at a lower Loan to Value Ratio (LVR).

What due diligence should I undertake before purchasing?

• Like buying a commercial property, you should be asking why the vendor is selling the land in the first place.
• Be wary of vendors that refuse to disclose this information.
• You can even be really cautious and make it a requirement that the Heads of Agreement (Contract of Sale) become null and avoid should you later find the soil to be contaminated.
• You should also ask for an indemnification clause to be included in the contract.

Can I get a development loan for my land?

• Commercial development loan: If you’re building a block with more than 4 units or a standard commercial property, you may able to borrow up to 75% of the land and construction costs.
• Residential development loan: For blocks of units less than 4, you may be able to borrow up to 95% of the hard costs.

Can I use my land equity for a construction loan?

• You can use your land’s equity as a deposit for a construction loan.
• Up to 95% of construction costs: Strong financial position, perfect credit, regular income, and genuine savings required.
• Up to 80% of land value plus construction costs: Most banks don’t lend for cost plus building contracts.
• Up to 100% with a guarantor loan: Full construction costs if parents act as guarantors.

What Are The Risks Involved

• With a land equity construction loan, your borrowing power depends heavily on the land valuation.
• Should I invest all of my savings into vacant land? If you plan to build on land you own, investing savings into it can be beneficial as it increases land value for a construction loan.

Will I pay CGT or GST when selling the land?

• Since the purpose of buying vacant commercial land is to either build residential or commercial property or to subdivide the land and sell, sales proceeds will be considered ordinary income and will be subject to the Goods and Services Tax (GST).
• However, if you plan to buy the vacant land, develop property and then rent it out, the land would be considered a capital investment and would be subject to Capital Gains Tax (CGT) instead.

What about contaminated land?

• Soil, land and groundwater contamination is common with commercial land but it’s often overlooked by investors.
• Will the bank accept contaminated land? It really depends on what you intend to do with the land.

What about hobby farm?

• A hobby farm is a rural property for small-scale farming aimed at personal fulfilment or self-sustainability.
• Will I get approved? Rural properties considered to be income-producing may be assessed as a commercial farm.
• Are they a good investment? The market for hobby farms is looking a lot better than what it was in the first few years after the Global Financial Crisis (GFC).
• Does Zoning Matter? Lenders assess rural properties differently, considering either zoning or land size and usage.
• Can I Get a Standard Loan? Farms are classified as commercial or hobby based on the valuer’s assessment.
• What improvements are allowed? There are no strict rules for residential vs. commercial improvements.

Property selling costs
• Agent Fees
• Marketing Costs
• Conveyancing Fees
• Capital Gains Tax (CGT)
• Presale Repairs and Renovations
• Styling/ Home Staging
• Auctioneer’s Fees
• Lender Fees
• Moving Costs

Property purchasing costs
• Minimum of 5% deposit
• Stamp duty
• Property title transfer fee
• Registration fees
• Conveyancing fees
• Inspections including building/strata and pest
• Home loan set up fees
• Lenders Mortgage Insurance (LMI)