The Smartline Report – November Edition

The month in review: Sydney

By Herron Todd White
November 2016

The strength of the Sydney property market, demand for housing and overall affordability have seen professional developers and mum-and-dad developers invest in the property market with small scale developments. It seems that investors are moving away from the once traditional investments such as government bonds and also shares which are seen as more volatile with higher risk for less return. This along with the increases in property values has proven that the property market has more appeal. A lack of available land in already established areas has seen a rise in popularity of redevelopment on both a large scale and on the small mum-and-dad scale as developers take advantage of infill rezoning, transport infrastructure projects and overall demand for new products.

Northern Suburbs
The northern suburbs of Sydney are price restrictive for the mum-and-dad developer, creating a barrier to entry for developers who are not cashed up. The only way mum-and-dad developers can participate is if they already own the property. We note the recent sale of an approved two lot subdivision in the leafy north shore suburb of Lindfield. The property sold for $2.55 million in January 2015. The purchaser subsequently secured approval to subdivide the rear portion of the block. This same house with approved subdivision plans re-sold in July 2016 for $3.92 million. That’s a profit of $1.37 million over 18 months for obtaining approval only. This is reflective of the difficulty in obtaining approval in this area, the potential end value for a new dwelling if sold and how entry level mum-and-dad investors can be priced out of the market.

South West
South west parts of Sydney have seen an explosion in development. Areas such as Parramatta, Holroyd, Fairfield and Liverpool generally see dwellings on far larger allotments than inner city suburbs which makes way for development opportunities subject to council approval.

Typical small scale projects include:
• Dual occupancies (granny flats, two dwellings on one title, duplex pairs);
• Subdivision of an existing parcel where the owner keeps the main dwelling and sells off the vacant parcel.

When taking on such projects an understanding of the council’s local environmental plans and development control plans is a necessity to ensure any viability with proposed projects. Generally sites that meet minimum requirements of frontage, size and zoning will be highly sought after, as the approval process for any development can be far less strenuous and cost and time effective.

The issue for mum-and–dad developers is trying to compete with local small scale developers. They are generally at a disadvantage because they tend not to have:
• Start-up capital to fund projects, in particular the ability to compete for purchase of a site while still being able to make any profit;
• Experience in building and understanding of local council requirements;
• Straight through process of completing the task in the most cost effective way;
• Lack of connection with builders. Mum-and-dad developers would generally have to pay cost plus labour rather than local developers who can source materials cheaper and cover labour themselves.

The projects that the mum-and-dad developer often tackle that can be very successful due to the reasonably cost effective start-up costs are where they consolidate their own site and remove the need to compete in purchasing expensive land. This is normally by way of granny flats, second dwellings and parcel subdivisions.

These small scale developments are well received by the buyer market. The reason for this is because they appeal to different sections of a very active market, such as:
• An investor looking to purchase a site with dual income;
• The extended family arrangements which are popular with residents of the south western area.
• Affordability for the buyer of a smaller home.

As a mum-and-dad developer the important concept is not to go beyond means and ability. Start off small and build from there.

East/Inner West
Within the eastern suburbs and inner west regions there are generally limited small development projects undertaken by mum-and-dad developers. Even the smaller scale developments of approximately three to six units are generally undertaken by more experienced developers mostly due to the price points and land acquisition costs.

The more common types of small projects tackled within these regions are duplex pairs, dual occupancy (granny flats) and renovation and shift.

There is a wide range of buy-in price points for a duplex site in the eastern suburbs depending on area. More prestige beachside areas of Bondi, Bronte, Clovelly and Dover Heights will set you back generally $2.75 million plus. Suburbs in the lower eastern suburbs such as Chifley, Malabar and Little Bay will set you back approximately $1.6 million plus for a duplex site with company title used to get approvals through council as opposed to the more conventional strata title or Torrens title.

We have seen these areas undertake more renovation projects of existing dwellings with the potential for capital gains. Renovated properties are receiving good premiums at present and experienced renovators are receiving good profits from renovating and selling.

Some examples of renovation and shift are 4 Broughton Street, Paddington which previously sold in September 2015 for $1.95 million. The property was a fully renovated 3-bedroom, 3-bathroom Victorian terrace with one car space and was recently re-sold in August 2016 for $2.9 million.

2 Walter Street, Leichhardt (pictured below) previously sold in July 2015 for $990,000 in poor condition. The property was fully renovated and extended and was re-sold in July 2016 for $1.75 million.

Properties are also being purchased to hold for redevelopment potential in the longer term. Areas such as the Sydenham to Bankstown Urban Renewal Corridor (inner west) and areas close to the South East Light Rail (eastern suburbs) have been popular for their future potential.
The southern regions of Sydney have seen more opportunities for smaller developers with the most common types of small projects tackled being generally duplex pairs, dual occupancy (granny flats) and small scale townhouse or villa developments.

Popular development suburbs include Carringbah, Cronulla and Miranda. The strong demand for new product has seen an influx of owner builders and developers in recent years. Entry level duplex sites generally start from $1.3 million with duplex construction costs ranging from $750,000 to $1 million depending on size and quality and finished product generally ranging from $1.3 million to $1.9 million.

Some small townhouse developments have also been popular in these locations with a recent example being 69 Caringbah Road, Caringbah. This property was purchased in July 2015 for $1.805 million and gained development approval for three townhouses. These are currently on the market with asking prices in the vicinity of $1.5 million.

Granny flats have also become increasingly popular with a 2-bedroom granny flat being built for circa $120,000 to provide extra rental income.

These areas have also seen opportunities for renovation and shift. For example a property at 3/7 Whitewood Place, Caringbah South (pictured below) comprises a 3-bedroom, 2-bathroom single level villa which was previously sold in March 2016 for $855,000. Following renovation the property sold on 26 August 2016 for $1.3 million.


Find out more information and to chat with a local Mortgage Broker in Sydney.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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