Is Property Subdivision Worth it?

Wednesday, March 9th, 2016
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In a recent newsletter from The Victorian Building Authority, we discovered there were several “bogus” builders who were deregistered in Victoria as their builder’s license was obtained through improper practice. It is understood this matter has been referred to the Victorian Police.

While this is an extremely worrying piece of news for property owners embarking on their small development projects – in many cases, probably their first – one should make a checklist of what is involved with a property subdivision exercise so that you can do the due diligence, measure feasibility and verify if your builder is going about the project in a professional manner.

The property subdivision process is as follows:

In the typical suburban block, your local council will require a town planning permit for the proposed dwelling(s) and will grant a subdivision permit to divide the original block into smaller lots. A dual occupancy subdivision would be two lots, as there will be only two dwellings on the original parcel. The dual occupancy can be in the form of a tandem where one house is in the backyard, a duplex where the two dwellings sit side by side or one above another. Corner blocks give each dwelling a street frontage. Multi-unit developments adopt the same principle, but more lots are created.

Your designer will prepare a set of drawings, including plans, elevations, shadow diagrams, overlooking and a design response. Your town planner would prepare a written report responding to the standards and objectives of Clause 55 at the least. Properties burdened by overlays will need to respond to the requirements of those overlays which could relate to heritage, environmental and vegetation matters, bush fire, views, inundation and so.

The subdivision permit granted by the council really becomes sellable once each lot is registered with the Land Titles office. In order to reach that stage, certain works are required as per the subdivision permit conditions. They could include the provision of services to each lot – sewer, water, power and so on. In some instances, one needs to only provide the infrastructure to a certain point on the land or one might be allowed to enter into an agreement with the local council and statutory authorities to do those works at a particular time.

In larger blocks of land or where there are no minimum lot sizes specified, an application would be supported by a Clause 56 report prepared by your town planner or land surveyor.

Some of the costs related to the property subdivision are as follows:

This is by no means a comprehensive list, as each site may have specific requirements to be met.

  • Architect and building designer fees
  • Council Aaplication fees
  • Fees to file in the Land Titles office
  • Fees to prepare a Section 173 agreement
  • Town planners fees
  • Land surveyors fees
  • Building surveyors fees
  • Structural and civil engineers fees
  • Other consultants fees (arborist, landscape designer, WMO, energy, to name some)

A typical subdivision cost to put in crossovers, driveways, power pit, sewer and connection, water, telecoms could cost around $10,000 to 15,000 per dwelling. Add to that the cost of building the new dwellings, which range anywhere between $1,100 to $3,000 per square metre depending on the level of finishes, design complexity and site restraints like foundations, slope and location of services.

So is it worth it?

You can now do your feasibility study based on the cost of the land, holding costs if any, interest, GST, selling/marketing fees, the cost to build each dwelling and the subdivision costs.

Research recent sales prices and discount it to a conservative level. With all that information, the profit margin on the investment can be evaluated. Any margin over 20 per cent is attractive in today’s terms. Smaller margins around the 16 per cent mark would be realistic if the initial investment is small.

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