Does Your Property Hold Development Potential
There are no black-and-white rules about what makes for a good development site, but the following are some key characteristics to look at when thinking about developing your property.
There are no black-and-white rules about what makes for a good development site, but the following are some key characteristics to look at when thinking about developing your property:
- Block Size, Shape, and Features
- Location and Nearby Sales Results
Over the last 2 weeks, I’ve been in serious discussions with two owners of very different properties who are considering developing with me in a Joint Venture. Using these as examples, read below to understand the above 4 characteristics in more detail…
Nicky owns two neighbouring double blocks in Croydon North, totalling over 5400 square meters.
The land size is huge, and each block is rectangular, which is good because not too much land will be ‘lost’ during the design phase (think about how unusable the three points of a triangular block are when plotting a house). The amount of vegetation on the site is a bit of a concern, given large tree protection areas can impact on where new dwellings can sit, and how big they can be built. And, there’s a significant slope across the site, which complicates design and increases build costs.
The zoning is really restrictive:
Neighbourhood Residential Zone NRZ2 requires subdivided blocks to be at least 864 square meters in size.
Bushfire Management Overlay BMO adds a level of complexity in design with regards to setbacks, materials, and orientations.
Design and Development Overlay DDO2 places importance on protecting the ridgeline that the properties will sit on, and restricts the size and type of driveways.
Significant Landscape Overlay SLO3 and Vegetation Protection Overlay VPO1 makes it difficult to remove trees of certain species and size.
The negative re location is the lack of proximity to shops, transport and schools. But, the positives are that the site itself is in a beautiful pocket of the suburb, with adjacent parklands and panoramic views. Properties in the immediate vicinity are highly sought after, and nearby sales results of large, newly constructed/renovated houses on block sizes about 900 square meters in size are really encouraging – like, $1.5m+ encouraging.
The last consideration involves ownership – this is particularly important for Joint Venture Projects.
If your Loan-to-Value Ration LVR is low, then that means some of the development finance can be secured against the equity held in the property. In Nicky’s case, she only has a small mortgage against the property. This suits me as a JV Partner, because it means that I’m partnering with someone who can help to raise funds (i.e. against the value of the property); if, alternatively, Nicky had a mortgage equal to 70-80% of the property’s value, it wouldn’t make sense for me to partner with her – it would make more sense for a developer to purchase the property from her, develop it themselves, and keep all of the profits.
Despite its challenges, the block has great potential for a high-end, low density development of large detached houses.
Unfortunately, after some discussion with Vicky, it’s become clear that a key motivation for hers is to move on from the property sooner rather than later. Whilst profits would be around $1.4m in addition to the original market value of $2.2m, she’s not in a position to spend the 24 months required to attain planning permissions and complete construction. I’m now assessing the property on behalf of a suitable client.
Frank approached me about developing his 4600 square meter blocks in Frankston.
The huge, flat blocks have 2 separate frontages and have minimal vegetation to contend with.
The zoning is currently Commercial 1 C1Z, but Council has approved rezoning to Residential Growth RGZ1 which will allow for dwellings up to 4 stories in size. There are no Garden Area requirements, and side/rear/front setbacks will be minimal. In short, the proposed rezoning will allow for Medium Density development.
Location is great – walking distance to shops, transport, and parks/beaches. But, while the immediate surrounds are residential, an Industrial area is nearby, which will affect resale values.
Lastly, Frank has very little debt against the property, which is appealing to JV Partners, as the value of the land can go some ways to supporting Debt attainment.
The site clearly has good development prospects for multi-level townhouses.
I’m firming things up with all key partners (Town Planner, Architect, Legal, Financial Partners, Council), and I look forward to presenting Frank with a Draft Proposal within a fortnight.
So, as you can see from the above, development sites come in all different forms.
If you think you might be sitting on some potential, do a bit of research into your block’s size, shape and features, it's zoning, its location and nearby sales, and the current ownership status (LVR).
From there, if you think there could be something in it, please ring me to discuss. Having done this work for 12+ years, I can size up development potential pretty quickly over the phone. I’ll gladly provide some free advice, and if there’s something in it as a Joint Venture development, let’s catch up to discuss in person. Coffee’s on me.