Property value after subdivision?
How much should I pay for the development site is a question on many developers mind who may be doing a small three-unit subdivision or a dual occupancy where the existing house is retained.
The first step is to work out how many units can be built or get Council approval and the size of each unit. We can help you here.
Then let's take a hypothetical 850 sqm Property in a local Council where the land is burdened by a schedule to the zone which requires very large open spaces and an overlay which requires vegetation to be preserved as well as 2 new canopy trees to be planted.
The property has several native trees over 5m in height which must be retained and new buildings to encroach a maximum 10% into the TPZ of these trees which requires an arborist's input. These council requirements “eat” into the developable portion of the land.
The 13.5m front boundary faces north which is not ideal.
The developer's objective is to demolish the existing house, which is in poor order and see how many units can be built.
Experience shows three units will be the maximum number which will garner this council's support for this wedge-shaped land in a court bowl.
Each unit will be around 150sqm containing 3 bedrooms. Ask us how many units can we fit on your land.
Recent sales in area show 3 bedroom units sold for $510,000. We are cautious so do our feasibility on a $480,000 selling price for each unit even though the front unit might command a slightly higher price.
Gross Income from the sale of 3 units
20% developer's margin $180,000
Selling/legal fees say $45,000
Building and soft cost $630,000
Subdivision cost $45,000
Others costs, say $30,000
Total development costs $930,000
Cost of property with a potential 3 lot subdivision is then $510,000 ($1,440,000 less $930,000)
We have not taken into consideration any contribution to be paid to the council and holding costs.
Using this same formula you can work out how much is a dual occupancy site worth where you retain the existing house and build one new dual occupancy home in the backyard. Of course, make sure you are allowed to subdivide the land into two lots as some Victorian Councils are or have put in place minimum lot sizes!
Allow for some renovations, contribution may not apply for two lot subdivisions and you may be satisfied with a smaller development margin.