Buying property can be both exciting and overwhelming, especially if you're an Australian expat navigating the process from overseas. One of the big decisions you'll face is whether to opt for a one-part contract or a two-part contract. The choice between these two could impact your buying experience, costs, and even your investment returns.

In this blog, we’ll break down what each contract involves, explore the pros and cons, and help you decide which option might suit you best.

What Is a One-Part Property Contract?

A one-part contract refers to purchasing a property where the entire transaction is handled under a single contract. This could include buying an existing property like a house, townhouse, or apartment. It could also involve purchasing an off-plan property, which means you’re buying a new home before it’s fully built.

For example, if you're purchasing a townhouse or apartment that’s already been constructed, the contract will cover both the land and the building as one single unit. Even when buying off-plan (where you pay a deposit upfront and the balance upon completion), the process is still managed through a single contract.

Here’s what you need to consider when looking at a one-part contract.

The Pros of a One-Part Contract

1. Simplicity

The biggest draw of a one-part contract is how straightforward the process is. Everything is wrapped up in a single agreement, making the purchase process easier to manage. This is especially handy if you’re living overseas and don’t want the hassle of coordinating multiple contracts or dealing with added complexities.

Once you sign the contract, you’ve essentially locked in the whole deal, and you can start preparing for the next steps – whether that’s moving in or getting ready to rent it out.

2. Speed of Transaction

Another advantage of a one-part contract is speed. If you’re purchasing an existing property, the sale is usually completed relatively quickly, allowing you to rent it out soon after settlement. This can be a big plus if you’re keen to start generating rental income right away.

If it’s an off-plan property, you’ll have to wait until the construction is finished, but once it’s built, you’ll be able to get tenants in quickly. So, while you might need a bit of patience, the overall process is still fairly smooth compared to other options.

3. Certainty

When buying an existing property, you know exactly what you’re getting. You can inspect the property or have someone do it on your behalf if you’re overseas. This offers peace of mind because you can see the condition of the home and have a clear picture of what you’re buying into.

For off-plan properties, while you can’t physically inspect it, developers will provide detailed plans and renders. These visuals give you a good idea of what the finished product will look like, and most developers offer guarantees around the quality and timeline of the build.

The Cons of a One-Part Contract

1. Higher Stamp Duty

One of the biggest downsides of a one-part contract is the higher stamp duty. This is because stamp duty is calculated based on the total purchase price, which includes both the land and the building. For Australian expats, this can be a significant upfront cost, particularly in states or territories where stamp duty is high.

If you're buying an off-plan property, keep in mind that stamp duty will still apply to the full value of the property once it’s completed, so there aren’t many ways to avoid this expense.

2. Limited Customisation

With a one-part contract, particularly when buying an existing home, your ability to customise the property is limited. You’re essentially buying the property as-is. If you want to make changes, such as adjusting the layout or upgrading the fittings, you’ll need to factor in renovation costs. This can add up quickly, especially if you have specific preferences or if the property is older and needs significant updating.

For off-plan properties, some developers allow you to select finishes or make minor adjustments, but the level of customisation is still limited compared to building a home from scratch.

3. Time to Rental Income for Off-Plan Properties

If you’re purchasing an off-plan townhouse or apartment, you’ll need to wait for the construction to be completed before you can start renting it out. This means there’s a longer wait before you can start generating rental income.

In some cases, delays in construction could push back the completion date, further delaying your ability to get tenants in. This can be a concern if you’re counting on rental income to offset your mortgage or other expenses.

What Is a Two-Part Property Contract?

A two-part contract splits the transaction into two separate agreements: one for purchasing the land and one for building the home. This structure is common when you’re buying a block of land and then hiring a builder to construct your home. Many Australian expats prefer this option because of the potential cost savings, particularly when it comes to stamp duty.

Here’s a closer look at how a two-part contract works and what to expect.

The Pros of a Two-Part Contract

1. Lower Stamp Duty

One of the most attractive aspects of a two-part contract is the potential to save on stamp duty. In this scenario, stamp duty is only payable on the land portion of the purchase, not on the total cost of the property once it’s built. This can lead to significant savings, especially in areas with high property prices.

For example, if you purchase land for $200,000 and then spend $450,000 to build a house, you’ll only pay stamp duty on the land cost. In comparison, a one-part contract would require you to pay stamp duty on the total cost of the property, including the building.

2. Customisation

A two-part contract gives you far more control over the design and customisation of your home. You can work with a builder to design a property that suits your specific needs or investment strategy, which is ideal if you want a unique home or if you’re building with tenants in mind.

This level of customisation isn’t typically available with a one-part contract, where you’re often limited to what’s already built or what the developer offers.

The Cons of a Two-Part Contract

1. Complexity

While the flexibility of a two-part contract can be appealing, it also adds an extra layer of complexity to the process. Unlike a one-part contract, where everything is handled under one agreement, a two-part contract involves two separate transactions: one for buying the land and another for building the home.

This means you’ll need to deal with more paperwork, coordinate between different parties (such as real estate agents, builders, and possibly architects), and manage multiple timelines. For Australian expats, particularly those living overseas, this added complexity can be a significant challenge. You may need someone on the ground in Australia to help manage the process or work with trusted professionals to keep everything on track.

2. Delayed Rental Income

Unlike a one-part contract, where you can rent out the property soon after purchase or construction completion, a two-part contract typically involves a longer delay before rental income starts flowing. You can’t rent out the land, so you’ll have to wait until the house is fully built before you can put tenants in.

Building a home can take several months, and depending on the construction timeline and potential delays, it could be a year or more before you start seeing any rental income. For expats relying on rental income to cover mortgage payments or fund other investments, this delay can be a downside.

3. Cost Overruns

While a two-part contract can offer the potential for lower stamp duty, it also comes with the risk of cost overruns during construction. Building a home can be unpredictable, and unforeseen issues—like delays in materials, labour shortages, or changes in building regulations—can quickly push up costs.

If you’re not on top of the building process, you may find yourself exceeding your initial budget, which can reduce or even eliminate any savings you might have made on stamp duty. This can be especially challenging for Australian expats who aren’t physically present to oversee the construction and manage any issues as they arise.

Comparative Cost Analysis: One-Part vs. Two-Part Contracts

To give you a better idea of how these two contract types stack up, let’s compare the potential costs involved.

One-Part Contract Example

• Total property cost: $650,000
• Stamp duty: $37,070 (based on Victoria's rates)
• Total cost: $687,070

Two-Part Contract Example

• Land cost: $200,000
• Construction cost: $450,000
• Stamp duty: $7,240 (on the land component)
• Interest on progress payments: $12,375 (calculated at a 5.5% interest rate over a 10-month construction period)
• Total cost: $669,615

In this example, the two-part contract comes out $17,455 cheaper than the one-part contract, mainly due to the savings on stamp duty and the ability to spread out payments during the construction period. However, it’s important to weigh these savings against the potential for delays and cost overruns that could eat into your budget.

Factors to Consider When Choosing Between One-Part and Two-Part Contracts

Now that we’ve covered the pros and cons of each option, how do you decide which one is right for you as an Australian expat? Here are some key factors to think about:

1. Your Financial Situation

Your financial flexibility will play a significant role in this decision. If you have the funds available to cover the higher upfront costs of a one-part contract (including the larger stamp duty), you may prefer the simplicity and speed it offers.

On the other hand, if you’re looking to minimise upfront costs and can handle the longer wait for rental income, a two-part contract might be a better fit. You can spread out payments over the construction period, which can be helpful if you’re managing other financial commitments.

2. Your Investment Strategy

If you’re investing in property with a focus on long-term capital growth, a one-part contract might offer a more stable and predictable path. The property is already built (or soon will be), and you can start generating rental income relatively quickly.

However, if you’re after more customisation and potentially higher rental yields from a brand-new property, a two-part contract could offer better opportunities. Building a home to your specifications means you can cater to market demand, which could translate into higher rents and better capital growth in the long run.

3. Timeframe

How soon do you need rental income? If you’re planning to use the rental income to offset mortgage payments or other living expenses, a one-part contract might be the way to go, as you can start renting the property out immediately after settlement or completion.

With a two-part contract, you’ll need to account for the construction timeline, which can delay your rental income by several months. If you’re comfortable with waiting, the potential savings on stamp duty and the ability to spread out payments could make this option worthwhile.

4. Level of Involvement

For expats who prefer a more hands-off approach, the simplicity of a one-part contract might be appealing. There’s less coordination involved, and the process is typically more streamlined.

However, if you’re happy to take on a more active role and don’t mind dealing with builders, timelines, and the risks of construction, a two-part contract could offer greater rewards in the long run. Just be prepared to dedicate more time to managing the project or rely on professionals to handle it for you.

Conclusion: Which Contract Type Is Right for You?

Deciding between a one-part or two-part property contract depends on your individual circumstances, financial goals, and how involved you want to be in the property acquisition process.

For Australian expats, the one-part contract offers simplicity, certainty, and the opportunity to start earning rental income quickly—ideal if you want a straightforward investment or a home ready to move into. On the other hand, a two-part contract allows for more flexibility, potential savings on stamp duty, and the opportunity to build a property tailored to your needs, though it comes with added complexity and a longer timeline.

Whichever option you choose, make sure to consult with trusted professionals—whether that’s a property advisor, builder, or financial planner — so you can make an informed decision that aligns with your financial situation and goals as an expat.

 

 

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General Information Warning: The information contained herein is of a general nature only and does not constitute in any way, personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional property investment advice specific to your circumstances.