The month in review: Gold Coast
By Herron Todd White
Two common small development type projects seen in the M1 west region include strata title subdivision of allotments and duplex pair projects.
Subdivision may not be permitted in some cases due to council regulations. A tried and proven loophole regarding subdivision is the alternative of strata title registration. With strata title registration, the original allotment can be divided and exclusive use areas apportioned to each strata titled lot surrounding the dwelling or dwellings, which can be sold separately. An example of a strata title subdivision is a property at Satinay Court, Oxenford. The original allotment comprised a 5,465 square metre allotment including a dwelling with ancillary improvements and dual street frontage. The owners unsuccessfully applied to Gold Coast City Council to subdivide the allotment. The owners then erected a second detached dwelling and gained strata title registration by dividing the allotment into two strata title allotments with Lot 1 having an exclusive use area of 2,229 square metres surrounding the original dwelling and frontage and access via Satinay Court. Lot 2 has an exclusive use area of 2,767 square metres surrounding the new dwelling and frontage and access via Michigan Road. Another example of a strata title subdivision is Eureka Crescent, Nerang. The original allotment comprised an 846 square metre corner allotment including a dwelling with ancillary improvements and dual street frontage. The owners erected a detached second dwelling and gained strata title registration by dividing the allotment into two strata title allotments. Lot 1 has an exclusive use area of 316 square metres surrounding the original dwelling and frontage and access via the southern boundary road frontage. Lot 2 has an exclusive use area of 327 square metres surrounding the second dwelling and frontage and access via the eastern road boundary.
Duplex pair developments are currently being erected within the Scenic Rise estate at Beaudesert. A developer undertaking a duplex pair construction has to take into account strata title registration fees, marketing and commission fees and profit margin to undertake the project. A recent project was undertaken on a 733 square metre block, with accommodation comprising a 3-bedroom, 2-bathroom, 1-car garage unit and attached 2-bedroom, 1-bathroom, 1-car garage unit with a total gross floor area of 238 square and construction cost of $540,000 including the land component. Expected rental rates are $300 per week (3-bedroom) and $285 per week (2-bedroom) or $585 per week combined, which accounts for a 5.6 % yield (gross) on the project cost of $540,000. Similar units in Beaudesert are selling for approximately $250,000 to $320,000. The current low interest rate environment and increase in values of established housing have made duplex type accommodation more attractive and affordable for the first home owner or investor.
Other types of small scale developments undertaken include dual occupancy or multiple dwellings on one title and subdivision of vacant land, however these are less common.
The market in the M1 west region has shown an increase in buyer activity with agents reporting low stock levels, especially in the sub $500,000 market, with an overall gradual improvement in value levels. This provides an environment and opportunities for the small scale developer. Due diligence is a must with any development and novice developers should become familiar with the local market, town planning considerations, strata title registration, subdivision and selling costs and fees and possible profit margins.
Central suburbia has proven to be a little hot spot for mum-and-dad would-be developers with council approving the strata titling and subdivision of many larger land allotments. Typically we have seen people who own existing dwellings on larger land lots strata title the site and build a second dwelling to the front or rear of the property and sell one (or all) off. This has been driven by not only a lack of listed houses for sale but a concerted effort by the local government to decrease urban sprawl and increase development, and also cheap money. One downside is that there are not as many large land lots available on the central and coastal-north suburban Gold Coast and in future it seems this number will only decrease.
Another popular development has been duplex pairs however as land prices continue to rise these are becoming less feasible. There is a case in Blake Street, Southport where the owners of an original dwelling managed to strata title the allotment and build a duplex pair to the rear in addition to the existing dwelling and sold off all three properties separately. It was successful for a number of reasons: the timing of the purchase of the original dwelling; the fact that the owner was a builder and was able to source quality materials at lower prices; and that the properties were finished and ready for sale towards the peak of the market. It doesn’t work for some, especially if they haven’t engaged a valuer in the early decision making stages of the process.
Any well-priced house in the area is selling at a fast rate and it could be said that there is more room for the strata titling of land as more and more people are forced into duplexes and townhouses as housing affordability becomes more of an issue for the market. Well positioned duplexes are selling well however we do note that the strength in this segment of the market seems to be based on housing availability and affordability as people would prefer to stay within a certain location rather than move further out where houses and land are cheaper.
The most common small projects tackled by first timers in the northern suburbs such as Coomera, Pimpama, Ormeau and Eagleby are subdividing detached dwelling allotments to create an extra dwelling, duplex pairs and dual occupancy. These small projects have increased over the past 18 months with the new Gold Coast City Plan and more relaxed development approvals from council. One of the loopholes in the Coomera and Pimpama precinct is the ability to have a duplex pair with the subject units being built to the appropriate standard to allow for individual strata title on only 450 square metre allotments as long as the frontage is larger than 15 metres. We are now seeing allotments in developments such as The Meadows and Big Sky taking advantage of this relaxation from council and going on to strata title the units for individual sale. Duplex units are becoming more popular. Local real estate agents who actively market duplex units in the northern growth corridor advise of generally good market conditions currently prevailing for units priced below $400,000. They further report that generally the market for this type of property has improved over the past 12 months, with low stock levels currently available and sale prices showing steady growth over this period. Importantly, the firming in the established housing market has had the effect of increasing demand for duplex units, particularly for first home buyers who are being increasingly priced out of the detached housing market.
The duplex pair project buy in price range is between $600,000 and $750,000 for turnkey completed product depending on size of the allotment and size of each duplex unit. New duplex units are achieving from $370,000 to $425,000 depending on size and quality with rentals achieving between $370 and $440 per week. After all associated costs involved with strata title and selling each duplex unit, the profit margins are achieving anywhere from 8% to 12%. Opportunities are there for both making a profit and holding for the long term with rental yields continuing to increase and provide decent yields for each duplex unit before strata title. The market seems to continue to strengthen. Real estate agents are reporting a firming in the northern suburbs with a lack of listed properties and increased buyer activity putting upward pressure on values. Townhouse units still need to be competitively priced in order to sell. Also body corporate fees reduce the return to the investor and are still having a negative impact on price levels. The subject unit’s value is primarily considered to be affected by investor demand and activity. Novices should try to stay away from these types of projects.
The most common project is the traditional renovation of the existing dwelling. Spend costs range markedly depending on the quality and degree of renovation.
The latest town plan Gold Coast City Plan version 3 has altered the rules on splitting and subdividing urban residential blocks to requiring 600 square metres per dwelling. Therefore, a parent site of over 1,200 square metres is required for low density zoned residential sites. This has slowed this type of subdivision in the inner city area.
Urban inner city buy in prices can range anywhere from $500,000 up to $1 million depending on location and rear frontage to a lake or canal.
Profit margin expectations are around 10% to 15% with developers often being builders seeking to obtain their builder’s margin as well.
In the outlying rural residential areas subdividing is becoming more common. This is generally being done on a strata basis with exclusive use areas assigned to each strata site. The owners get approval to build the second dwelling, however they can’t apply to split the parent site until the second dwelling is built. On near level to easy sloping sites, market evidence to date has shown the new dwelling typically offering 4-bedroom, 2-bathroom accommodation with a double garage on anywhere from 3,500 square metres has been achieving circa $700,000 to around $750,000 in close in rural residential localities including Mudgeeraba, Tallai, Worongary and Bonogin.
The market is currently strong in the central beach front localities for units in smaller developments that may have future re87development potential. Typically older style 2-bedroom, 1-bathroom units in a small five or six unit development on a parent site of 600 to 800 square metres start around $360,000 and can achieve up to $450,000 when renovated.
Houses in central areas are in strong demand, selling quickly and the market is nearing the peak.
Outer areas dominated by high investor ownership are at the peak and possibly oversupplied.
Find out more information and to chat with a local Gold Coast Mortgage Broker.