One of the most common types of small projects is the demolition of an older style dwelling and construction of at least two courtyard style dwellings on the site. There is some tendency to renovate character style properties close to the city but generally purchasers of these types of properties tend to occupy the property rather than renovate and move on. Ongoing zoning changes within varying areas, particularly along main roads, is encouraging higher density developments.
An example of this in-fill development is shown below. The first photo shows a circa 1960s single level dwelling situated on a 696 square metre corner allotment in the suburb of Campbelltown. The property sold in late 2014. Recent zoning changes in this area mean the site has been subsequently developed and four two-storey dwellings have been constructed. The artist’s impression is shown below. (Source: realestate.com.au)
There is increasing in-fill development occurring through many suburbs including Warradale to the south-west, Findon and Seaton to the west, Enfield, Clearview and Northfield to the north and Rostrevor and Campbelltown to the north-east.
Town planning considerations vary greatly across the Local Government Areas. Restrictions to development typically include minimum allotment size, minimum frontage and private open space. Depending on the council area, some dwellings need to be constructed as row or group dwellings rather than detached dwellings. This can have an impact on the number of potential purchasers of a development site. A higher density development requires a larger financial investment which may be unsuitable for a novice investor.
In an area such as Findon or Seaton depending on the property’s location in the suburb, you would expect a buy-in price of at least $450,000 to $500,000 and into the $500,000s depending on the size of the allotment. A general profit margin for small-scale developments would be around 20%.
The small scale project market is performing. Some developers are only demolishing existing dwellings and on-selling newly created allotments, whilst the majority construct new dwellings which are then sold. The development site market is currently positive particularly given the lack of supply in some areas. That can result in a premium price being paid at times. Where there is a greater supply of potential development sites there are obviously a myriad of options for developers which results in less competition and less chance of developers paying too much.
There are opportunities in a number of areas to buy properties with redevelopment potential and make a decent profit. The initial purchase price is an important factor in making a decent profit. It is important particularly for small-scale developers to choose projects wisely and not over-spend on the development site initially. It is difficult to make up for lost ground in the construction phase without potentially cutting costs on important items.
It is important for a novice developer to determine the nature of development they will undertake and ensure they are aware of local council constraints. Given the increasing issues with split contracts and the inability for purchasers to obtain funding on affected vacant allotments, it is important for a developer to be aware of these issues particularly where a developer is attempting to sell allotments on a vacant basis rather than being improved.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.