Determining whether your development is worth
Can I develop?
Working out whether you can develop on your land begins with knowing your zoning, and the size of your block. There may also be local laws or regulations that affect or limit the kind of development you can undertake. A ‘zone’ shows the preferred land uses in an area, it regulates building and structure dimensions, design, placement and use. Requirements will vary from council to council, but they must be uniform within each. It is important to know this information because it these regulations will dictate what you can build on your block of land, regardless of what you would like to build. If you haven’t got a block of land and are very specific about what you want to build then you will need zoning information to find the right block to fit with your development plans (as well as being a desirable location for buyers/renters you hope to sell/rent to).
If you’re working with the Highlife Homes Development team, we’ll help you find out all this information and walk the site with you to explain important issues – items such as existing services and how they’ll need to be altered or added, easements, demolition or levelling requirements, earthwork and soil issues, and the interests of authorities.
We can help you determine what kind of development you can build on your land and how to optimise the land while still staying within council requirements. We can also connect you with industry professionals to help you best tackle your development approvals and determine whether your ideas are feasible and whether or not you will come across any issues with council.
Click here to go to the Gold Coast Property Enquiry website where you can search any registered block of land on the Gold Coast and get specific zoning information on that block and community. This is a fantastic resource for council information on your land, a great site to bookmark for future use.
What will the development cost?
There are many more costs involved in a development than the construction. You will need to calculate all of your costs so that you know what you need to sell them for (or what they need to increase in value by over time) in order to get your return on the investment. This basically equates to – is this development worth doing?
Here are just some of the costs you need to factor in to your project (depending on your development project there may be more costs than what is mentioned here):
- Land cost and stamp duty
- Construction cost (Highlife Homes can supply this)
- Infrastructure Charges
- Advertising Costs
- Solicitor’s Fees
- Real Estate Agent Fees
- Council Rates
- Title Registration
- Strata Insurance
- Body Corporate
- Interest on your loan (if you are using a lender for the development)
Can I get finance?
Unless you are funding the project out of your own bank account you will need a lender. Here are some things to consider when trying to get lending approval for your investment. When assessing your development, project lenders look carefully and critically at the quality of the security you are offering; that is the end product of the development. Their primary considerations are:
- The fire sale price of the security. What would they be able to sell the property for if they had to take possession as mortgagee and sell it?
- The end value of what you are building. If they are higher than the median price in your area they see this as less security because they may be more difficult to sell.
- The zoning of your land. Residentially zoned land is the most highly regarded as it is the easiest to sell.
- The postcode in which your development is situated. Lenders prefer to lend against properties in areas that have a history of strong capital growth and population growth.
When assessing the feasibility of any potential development project, it is important to keep the lender’s criteria in mind. After all, a development can look wonderful on paper, but unless it ticks all of the right boxes with the banks, it won’t even get off the ground.
What return will I get?
This all depends on what you are planning on doing with the development. Will you sell as soon as construction is completed? Or sooner (off-the-plan)? Will you sell some units and rent out others? Will you hold onto all the units and rent them out for a passive income and capital growth?
If you plan on holding on to part or all of the development for a rental return, consider whether it will bring you a passive income (meaning you will be able to charge a rent that is higher than your loan repayments on the property) or if it is negatively geared (your repayments will be more than the rent meaning that you can claim the loss for now and instead pursue capital growth over the long term).
If you know you can gain a passive income (positively geared), make sure you speak to real estate agents (more than one for a more informed idea) to find out your potential rental yield and look at similar rental properties in the area.
If you invest in a negatively geared investment you are going to want to do as much research as possible to ensure that you will gain capital growth over time. How have other properties in the area performed over the past 10 years? Has the median house price of the area increased over the last 10 years? What lifestyle aspects are going to be developed in the area over the next 5-10 years (e.g. cafes, shopping centres, transport, parks, schools, childcare centres)? If you have a negatively geared property, capital growth is your only chance to get a return on your investment, tax savings are not enough to cover your loss.
If you are planning on selling off-the-plan or as soon as construction finishes, you must do your research to find out how much you can sell your units for. Talked to multiple real estate agents to get more than one opinion on sales prices. Look at the sales history of the area. What have other properties in the area sold for? Are they similar, better or worse than your properties? What is the average household income of the area? Is there a lot of lifestyle aspects in the suburb to warrant the price you want to sell for (e.g. cafes, shops, schools, parks, beach)? If your research shows that you can easily sell you units at a price that will generate you a handsome profit, go for it! If not, it might be a good idea to seek further professional advice, or consider doing the project in a different area, or consider downscaling the project to fit with the market.