House and Land Packages - The Mechanics

Discussion in 'Development' started by The_Billy, 31st May, 2020.

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  1. The_Billy

    The_Billy Well-Known Member

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    Hi All

    I'm just wondering if there is anybody here experienced in the world of house and land packages - namely the interactions behind the scenes between Land Developer and Builder when they are two separate entities and not in partnership.

    An example may be; Stockland as the Land Developer. Developing and selling 2000-3000 blocks over a number of years and John Smith Construction (small to medium size builder) who is selling house and land packages in this development, say about 10 maximum.

    I understand that these arrangements can all be different however what is most common arrangement between both parties in a situation like this? For example, the builder obviously does not purchase these blocks up front? or do they? do they typically get a discounted rate for higher volume than a one off consumer? do they place deposits (5%-20%) or is it just a contractual hold for say 90 days and then the contract is void if they don't exchange by then?

    If anyone can shed light from their experience with the industry that would be helpful.

    Thank you in advance.
     
  2. craigc

    craigc Well-Known Member

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    Sash would be a good person in this area but haven’t seen him around for a while.
     
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  3. James Fontaine

    James Fontaine Member

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    Most of the builders I work with have a put and call arrangement. Means they have access to exclusive use of that block for 'x' amount of months and if they do not sell them in that time, they have to settle on them. So the developer is getting a guarantee of money in the end and the builder can tailor a package for that block and advertise it without the worry of it getting sold.
    Typically they do not get a discount of land in this arrangement unless the developer is offering rebates.
     
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  4. euro73

    euro73 Well-Known Member Business Member

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    We do quite a bit of this for our Dual Occ packages. We will do a deal with a land developer for X number of lots and always negotiate a discount on retail for the lots. It might be 8K, 10K, 12K per lot ..... can vary from development to development , but none of our clients ever pay retail. That's one small advantage of doing a dozen or so at a time. We make zero for doing so...the land isn't ours and we don't ask for or accept anything from land vendors other than the discount.... it simply helps our clients into a bit of a better deal, and it helps us move through a tranche of construction faster and more efficiently. It allows us to prepare site plans, drawings etc for our packages, in advance. We save a bit of time. Our investor clients save a bit of money on the land itself and it also saves them a bit of money between settlement of the land and completion of the build, as we are able to get started immediately following land settlement. Our clients are certainly welcome to go it alone and buy any lot they want; we will still build for them - but they will probably pay sticker price for it and it will be a bit slower process to get construction started. So no one does that.

    The only time we buy the lot is when our client is purchasing via SMSF. In those cases we simply add the cost of the stamp duty and legals incurred to settle the lot, and deliver a single contract deal for them. We carry the build on balance sheet and add nothing to the price for doing so. About 1 in 5 of our Dual occ's are done this way. Typically, the discount on the lot is more than the cost of the stamps and legals, so they are no worse off than someone paying retail for a vanilla 2 contract deal
     
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  5. The_Billy

    The_Billy Well-Known Member

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    Thanks for the recommendation, I've read his posts he's got good but albeit controversial opinions :) ... No offence intended.
     
    Last edited: 10th Jun, 2020
  6. The_Billy

    The_Billy Well-Known Member

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    Thanks for the insight and detailed response Euro, I really appreciate this. Is it the volume of deals that the land developer entertains? Do you contract with them, or is it just a good will arrangement whereby they offer the discount in writing and if you secure a deal before them the block is yours if they sell it before you then tough luck? I don't believe my capacity would entertain a purchase and likewise I'm not getting enough enquiries to go into the SMSF market, it's just mum and dad owners looking for convenience in the transaction.

    This is my only motivation to do so. I spoke with a large land developer recently about a consumer purchase and they offered a discount for 2 blocks for (myself and mum) hence sparking the idea that there may be potential in packaging and building also.
     
  7. richy

    richy Active Member

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    Assuming Builder A and Builder B are similar in terms of quality and pricing, is it better deal to get a house and land package from Builder A as compared to buying a land and then choosing your own builder i.e. Builder B?
     
  8. euro73

    euro73 Well-Known Member Business Member

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    For investors dealing with us? we have a formula and we don't divert from it , as it has proven itself very effective time and again. My company works with one builder. We do deals with land developers and my builders build on that land. If someone wants to do something different they are welcome to - with someone else. We don't do bespoke /custom builds .
     
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  9. richy

    richy Active Member

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    More from an owner-occupier standpoint rather than an investor.
     
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  10. euro73

    euro73 Well-Known Member Business Member

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    In regionals where we build, bringing 10 or 12 deals to the table every 5 or 6 months usually gives you a little bit of group buying power. Not always though; there have been times when some land developers have refused to strike deals. We don't worry too much about them. Unless they have a monopoly on every lot in a location we are interested in, we have been able to take our business elsewhere and strike some sort of deal. You have to accept that there are all kinds of different land developers out there- some have serious ego's, are looking to play God and extract every possible penny; others are practical people and take sensible , pragmatic approaches to doing business... In Orange at the moment, there is little suitable registered land. Plenty of unsuitable lots - ie too small, too hilly etc...but not much thats flat/flatish and 700M2 +... The upcoming release in Northern gardens Estate , which will deliver the next suitable lots, is being run like a bit of a ruthless , fit in or F off kinda deal. They wont even talk about making more than 1 lot available to any 1 builder, as they have a monopoly...for the time being. That's entirely their prerogative. Its their business...they can play it however they wish. many people would do the same if they felt they had a monopoly. But in time other land will register and people will have other choices and people will also remember how they were treated. There are other locations we can do business while we wait for other choices to become available there ... such as Goulburn, Or Bathurst, or Albury- where we are likely to look at next

    It's a goodwill arrangement where they set aside the lots for our exclusive use for a period of time. We only buy when an SMSF wants to purchase one of our Dual Occ's , as a single contract is required .
     
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  11. euro73

    euro73 Well-Known Member Business Member

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    well I cant comment on that, as we don't do that kind of thing. We don't do basic contracts with allowances for X amount per M2 of flooring, and X amount of this and X amount of that, and variations /options lists as long as a Jaguar or Audi or Porsche dealership. We deliver a turn key product at a fixed price - no more to pay.... no variations.... with 2 rental incomes.

    Are you a builder wanting to sell product to Owner occupiers?
     
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  12. richy

    richy Active Member

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    Thanks for the response. No I'm just an FHB trying to learn as much as I can about land, builders and H+L packages through this forum.
     
  13. The_Billy

    The_Billy Well-Known Member

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    Very interesting, thank you for the insight. Did you ever try bespoke custom builds and it did not work?
     
  14. euro73

    euro73 Well-Known Member Business Member

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    No. we work with investors. The focus is cash flow. Bespoke is pretty, but not good for investors hip pockets :) It's best left for PPOR products