Web Specials
Selling with a DA
The strategy of selling property with a development application (DA) already signed, sealed and delivered is a little like completing a small development project, except with the construction process stripped off the end.
Here we continue our detailed report on this strategy which begins on page 58 of this month's API (June 2010)...
What's required to make it work?
"My caution to property investors would be to do it in a time in the property cycle where investors are keen to buy property. If you're doing it, just say, on a vacant block of land the holding costs can really cut into your profits," property lecturer Peter Koulizos says.
"But if you're doing it when the market's hot then you should do quite well out of it."
Koulizos has first-hand experience of the importance of timing the market with this sort of strategy.
"In McLaren Vale I actually went one step further and subdivided to create two blocks, but that's where I made my least amount of profit because of the timing of the cycle. I actually was selling them after we'd already hit the peak and we were on the way down.
"I still made a profit but nowhere near the same sort of percentages as the other projects."
The current stage of the cycle is a great time to be land banking and achieving development approval on a site, ready for sale in 2011 or 2012, Koulizos believes.
"I'm going to start looking again probably at the end of this year once my units at Seacliff Park are finished," he says, referring to a development he has under way (see story on page 54).
"(I'll be) looking to get the land, get the DA, and if the profit's in it maybe build it myself and keep some, or if I feel the timing's right maybe just sell it with the DA."
What projects does this strategy work for?
Property author and JLF Corporation founder John Fitzgerald has been involved in huge projects using this strategy, but says it can still be profitable on a smaller scale.
He says it's easier to work with councils on built forms and unit sites, rather than land subdivisions. For beginners, he suggests finding a property where you could win approval to create two dwellings, or perhaps a site for three or four units or townhouses.
"That's a bit easier as that's a little bit more straightforward for the council," he says.
Smaller projects might be easier to sell, as there's a wider market for them, Koulizos suggests.
"There are lots of people that want to do ones and twos (unit sites) but there are less people who want to do fives and sixes."
And developers of those larger projects are more likely to want to get their own DA, rather than paying a premium for the site, he adds.
Herron Todd White valuer Kieran Clair suggests there's probably a relationship between how difficult it is to win approval for a particular project site and how much value having the DA will add.
"The harder it is to get the approvals through a local authority, the more value I would assume it would add to a property," Clair says.
Thus, if it's going to take 12 months of hard slog to win an approval, then that would add more value than an approval that would be faster and simpler to achieve.
Tolo says single-unit developments are more difficult to get approval for in Brisbane, for example, because they're 'impact assessable'; this means the approval time can extend to eight months.
As a result, having this type of approval might offer the biggest value-add for the investor achieving it. Of course, these sites are also likely to involve the greatest holding costs and the highest risks.
Recent Web Specials:
Rivett Property Data & News
Tiwi Property Data & News
Kambah Property Data & News
Will regional areas outshine capitals?
Report card: 2010 Hot 100
Escaping the rat race
