How does ACT’s Land Rent Scheme work?
Housing affordability is a hotly debated topic. Some say that the average Australian is being priced out of home ownership, while others believe young people are just spending too much on smashed avo. We’ve talked recently about the incentives introduced by the New South Wales government to address housing affordability concerns, but the ACT has its own plan to get more first home owners into new houses – the Land Rent Scheme.
What is the Land Rent Scheme?
The Land Rent Scheme was initially introduced as part of the Land Rent Act in 2008, and its original purpose was to help people enter the housing market. As median house prices in the ACT have leapt from $452,500 in 2008 to around $640,000 in 20171 – the scheme now benefits a much larger group of people.
It works like this: Instead of buying a house on a piece of land, you purchase a block of land from the Suburban Land Agency. You pay rent to the government (specifically, the ACT Revenue Office), and how much you pay depends on the size of the land. Within a year of initiating the lease, you must begin construction of a house, which is required to be completed within two years of the start date of the lease. Essentially by renting the land rather than having to buy it, you are able to build a home without needing access to vast sums of capital.
The average building cost for a three bedroom home in Australia is around $190,0002. At less than one third of the median house price in ACT, this scheme clearly can be a great asset for first home owners.
Construction loans are generally no more difficult to acquire than a regular home loan, it all depends on your financial situation. The final benefit to first home owners in the ACT is that this scheme is open exclusively to them. No person may take advantage of the offer if they already own property, and those with a high gross income or considerable net worth are not eligible.
The key eligibility criteria for Land Rent Scheme is:
- Household income does not exceed $160,000.
- Lessee(s) must reside in property.
- Lessee(s) cannot own other real estate
What land is available?
The scheme is available in certain new developments released by the Suburban Land Agency or existing properties which are being sold and are currently under the Land Rent Scheme. As part of Beyond Bank’s Land Rent Scheme loan package, we offer a four month pre-approval window, which means you should have plenty of time to find the perfect plot for your new home.
What kind of house can I build?
There are no restrictions on what kind of house you can build under the Land Rent Scheme, other than it must be a single dwelling. This means you can build one standalone house, so a smaller unit in addition to the house would not be allowed. The house will still need to comply with state planning and building standards, and there may be additional regulations specific to suburbs or areas, but these will be clearly outlined when you agree to lease the land.
How do rent payments work?
The rent is calculated at 2 per cent of the unimproved value of the land per year. Unimproved value is essentially the assessed value of the land at a particular point in time rather than the value of the land with your house built on it. If you buy a piece of land for $200,000, your repayments would be around $4,000 per year.
Am I still eligible for the First Home Owners grant?
The great news is, if you’re able to take advantage of the Land Rent Scheme you will not be barred from applying for the First Home Owners grant of up to $10,000. As long as you meet the individual eligibility criteria for both, you are able to reap the benefits of both schemes.
Conversion of entitlement
A Land Rent lease can be converted to a nominal Crown Lease (what they call full ownership in ACT) at any time. The amount payable to convert the lease is based on the unimproved value of the land at the time of conversion – not on the original value from when you entered into the Land Rent lease.
To purchase the Land Rent block from the Government you will need to notify the Environment, Planning and Sustainable Development Directorate of your intention to purchase. The Government will prepare the necessary paperwork for a fee which will need to be executed and copies provided to your financial institution. The financial institution will then prepare loan contracts and attend settlement (fees involved) to obtain the necessary documentation converting the lease from Land Rent to a nominal Crown Lease and pay the outstanding amount owed.
It’s a good idea for you to see your financier first to ensure you have the ability to borrow the additional funds to purchase. Remember the land rent payments do not apply towards the amount payable to convert the lease.
For more information about how Beyond Bank can help you into your brand new ACT home, get in contact with us today.