A land division is the way developers create new allotments. When a developer or land owner creates a new allotment, they increase the value of their land holding by utilising the development potential of their property. This is often referred to as a subdivision, cutting an allotment into two or creating an additional allotment or a new title.
One of the misconceptions surrounding subdivision is that the development of land always requires the construction of a house on the land and that this creates the profit of the development. This is most often not the case. For many projects, the underlying value of a property development is most often the land not the building. You can create a new allotment by undertaking a land division and then sell the allotment without having to build. This process is much less risky, more profitable and less time consuming.
Step 1. Conduct due diligence
Before you buy a property for development, the first step is to undertake due diligence. This is the process of gathering all the relevant information that affects the property. This information is mostly contained in the Council searches that the agent obtains when selling a property.
The search contains a list of all the information that relates to your property such as the zoning, the council rates, if the site is known to be contaminated – that is if there are any outstanding issues affecting the property and any previous permits for development on the property. The other important piece of information you will also need to check is the certificate of title. This document contains all the relevant information that applies to the property such as the owner’s details, if a mortgage is registered on the property and whether there are any easements for services and utilities such as storm water, water, gas electricity.
The most important factor which affects the development potential of your property is the planning and the zoning. You need to verify what the zoning for your property is and then confirm this with your local Council. You should then go to the local council and obtain any information they have regarding development within the zone. Councils generally have guidelines which they provide the public which often summarise the key points that need to be considered when you subdivide your property.
You should also undertake market research: gathering information about previous sales in the area, looking at what is on the market now, analysing how much similar development sites are selling for. You also need to analyse how much your proposed development will sell for and this is also done by looking at other comparable sales and what is currently on the market.
Finally, before you start developing land you should always have a feasibility study or development strategy plan. This is a document that details your goals and objectives for your development and the risks and potential development profit from your project. It also shows the time required to complete the project.
This plan is really important because it provides you with a guideline for your entire project and it helps you keep track of your goals. Often in development projects we get caught up in too much detail and lose our way. This is very dangerous because it can lead to the erosion of all the development profit and an overall bad return on the property investment. For example sometimes people forget about interest on their borrowings when they undertake a small project. They say I made a profit but often it takes them two years to complete the project and during this time they have paid a significant amount of interest which can often mean their profit is halved.
Step 2. Appoint your team
One of the mistakes people make when developing their land is that they try to do everything by themselves to save money. This often results to severe which can be very costly. This also leads to a big loss of time which inevitably ends in more interest costs and a loss of development profit. To avoid this problem it is important that from the beginning of the project you identify which professionals you need to help you develop you land.
A typical team will include the following people:
- Property Lawyer
- Building Designer
- Urban Planner
- Real Estate Agent.
You should identify your team before you start your project. These people will charge you fees but they help you through the process and save you considerable time and money. Professional developers always have a team of support consultants to help them. No-one knows everything and sometimes as individuals we forget things and this can lead to costly mistakes.
Step 3. Meet with your team before lodging your application
Before you commence your development proposal you will need to appoint your team. This will include a building designer, surveyor and possibly an urban planner if you have a complicated land division proposal. As previously stated it is better to create a team of professionals so you don’t make mistakes and potentially lose all your profit.
You don’t have to spend a fortune to get good advice. You may only need the urban planner for a couple of hours to provide you with some preliminary advice. This can be worth a lot more to your project than the small amount (less than $1,000) it will cost you.
I suggest you have a startup meeting with your team. At this meeting the team raises any issues regarding the development of the site. This way you can get everything out before it’s too late.
Step 4. Council pre-lodgement
Once you have put together your development proposal with your building designer, surveyor and or architect, you should go to your local Council with your preliminary plans and have a pre-lodgement meeting. It is also a good idea to take you urban planner to this meeting.
You will need the following documents to bring to the meeting:
- A copy of the certificate of title
- A plan of the existing property including any houses or sheds located on the property and any other significant features such as large trees
- Some councils require you to show how a new dwelling will be sited or positioned on the proposed allotment. (You can verify this when you make you initial inquiry before you purchase the property.)
The following information is generally required for most land division applications:
- A plan showing what you propose to do. Show the proposed allotment you are going to create and how big it will be. You also need to show how big the existing allotment will be once you divide the property
- Show the open space areas for the existing house and any proposed house on the new allotment
- Show the existing driveway and any proposed driveway for any proposed / existing dwellings
- Show car parks for the existing house and any proposed carports or undercover car parks for the proposed dwelling.
In the pre-lodgement meeting you discuss your proposal with the council’s urban planner to determine if your proposal meets the council’s planning policies and guidelines. This meeting should not be adversarial but should be about discussing ideas. You should seek their advice. If they see you want their help often this breaks down the barriers and they will then support you rather than fight you. Don’t be defensive, engage in a productive conversation and seek their ideas. You should also explain your proposal and ask if it would gain support from the council.
Step 5. Refine your development proposal and lodge the development application
Now you have identified any potential issues with your proposal you should meet your professional team again and instruct them on what needs to be done and what changes if any have to be made. The team will then make these changes . Now it is time to lodge your development application.
Step 6. Tracking your application
The time taken to approve a development application varies considerably between different states and different councils.
During Step 1 and Step 4 you must ask how long a development application takes to get approved. This is extremely important. The council planner will generally try to avoid answering this question because it does vary between different applications. But you should persist with this question and ask “In most case how long does it take to get a planning permit”. Ask for an indicative time frame, eg from three to five months.
Once your application is lodged you must track the processing of the application. Stay in touch with your council planner and call the planner on a frequent basis asking if council needs any further information and if you can assist them further with anything. Always remain positive and helpful. If you help them they will most times help you. Again don’t be aggressive or threatening this won’t work. By being helpful and positive you can often shorten the processing time for your application. If you become negative and aggressive this can often make the process take longer.
Subdivision is a great way to get ahead and make profit. It is an exciting and diverse area and is a great deal of fun and is always challenging. However, it is also risky and highly complex. You should always do two things:
- Due diligence and upfront planning – Gather as much information as possible before you buy and develop.
- Seek professional help. It doesn’t cost much and it will save you thousands
Originally published as: http://www.yourinvestmentpropertymag.com.au/property-development/land-subdivision-101-119091.aspx