1. Strategy and planning
Before venturing out to look for a ‘development site’ it is important to do some homework. As we have seen you first need to decide which real property development market you’d like to try your hand at. This is to ensure you start looking for the right type of sites. You need to know the style of development you’d like to try, the size of the land you need, and in most cases, the general location of your proposed purchase and most importantly which criteria will dictate market value. These things need to form the outline of your strategy and plan. If you don’t, you will make the process of land procurement difficult.
2. Location & area attributes – amenities
I am often asked how I find a great development site. The answer to this very general question lies within the area itself. Rather than go looking for a development site, then seeing if it will work for me, as mentioned above, I firstly determine the market I’d like to develop in, then the general area in which I want to develop.
People are usually ready to buy expensive property in preferred superior regions in both favourable and unfavourable times. The fact is that properties in first-rate suburbs continually fetch higher prices, while properties in second-class areas weaken in bad times. Building property in pricey areas is easier due to the better prospects of profits in these localities.
The rest is entirely a numbers game, but let’s get back to what we need to consider in selecting our area. There are a number of variables to consider. Most people are under the wrong impression a development site has different criteria for selection than those of an investment property. This is simply not true. Yes, it is true, there are many more criteria to investigate for development sites but keep in mind the purchaser is, in most cases, either an investor or a home owner and their criteria will be the same. Just as real property investors and home owners look for the right positioning and local amenities, capital growth and rental returns, you, the developer, should also have this end in mind and find sites that your end users will look to purchase. Therefore, taking into consideration the points we have just mentioned, when it comes to selecting a property to purchase ask yourself the following questions.
I call them the ‘5km’ questions.
• Is the train station within 5kms from here?
• Is the closest bus or tram stop 5kms from here?
• Is the local school 5kms from here?
• Is the local shopping centre within 5kms from here?
• Are there plans for any of the above in the near future within 5kms from here?
If you answered ‘yes’ to three or more of these then you have found a great location. If however, you answered ‘no’ to more than three, then it is time to move on and look for a different location.
3. How to assess a prospective real property site
It is appropriate to look out for changing suburbs when selecting your site for your development. For instance in poorly maintained suburbs, it is possible to frequently spot cases of youthful population migrating to these localities to purchase and refurbish the attractive older residences and rejuvenating the area.
Traders are usually attracted to these localities using uptown cafes, boutique shops and eateries to provide products to the newly settled. Closely examine property prices to note suburbs where you are convinced there are chances of undervaluation and are ready for change. Most of the time such properties neighbour an exclusive suburb where youthful buyers have been priced out.
4. Gaining profits during a purchase
Finding an ideal piece of land may take weeks or even a couple of months. A suitable way to make sure you get the ideal land that will offer the highest gains is to consider the sites price as a fraction of the ultimate value of your project at the time of selling. To achieve maximum profits from your real property, you should make sure the site or land value does not exceed 25% to 30% of the final project value. So if your property’s predicted end value is $1 million, your plot’s cost should not exceed $250,000 to $300,000.
You should always steer away from emotions and only buy property on the feasibility of developing it. The site should pass stringent qualifying tests which include location and planning provisions, suitability of the venture and the attractiveness of its location.
5. Local Council
You should always look for an area which has an active council. Activity in an area can be measured by the number of new dwellings, so drive around and look around. Open your eyes to see what is happening in the particular area you’re looking at. Can you see any new developments? Another way to ascertain if a Council is active is by going to the council web site and looking at how many applications for new dwellings have been submitted and, more importantly, how many have been approved or rejected. If you find a Council has a high refusal rate – say 50% – and most of the refusals are later overturned in VCAT, it usually means the council is against development and you may find it hard to obtain planning permits. It may be wiser to move onto another area or council. On the other hand, if you find over 70% of the applications were approved in council this would suggest the Council is pro-development and a planning permit will most likely be granted if it complies with all regulatory requirements. The council websites will also show you where in any local government area the council is approving those new developments. There might be plans for new infrastructure and amenities in the area to cater for the residential growth. The number of new dwelling approvals also tells you how much demand there is for new dwellings in the area. This is a good indicator of how much further growth and profit there is to be made there.
6. How to find information on local council area plans
All councils have a master plan and as a developer you need to find, understand and asses them. To find such a plan years ago before the IT age was quite difficult and would require you to sift through files at the local council offices. This was time-consuming but now with the benefit of the internet it is much more easily achieved. Nowadays the council web site will tell all you require to assess the plans for the local area. However, I would suggest you look more deeply into the information you find as council by-laws and planning regulations are in a state of constant change. Don’t hesitate to either phone or call into the council office to make sure what you find on their site still stands. Some councils update their web sites regularly and some do not. Recently I was caught out with a heritage listing on a property which was not mentioned in the local council web site. Most of the time however you should find all you need on their site.
7. What should you be looking for in the master plan?
The first thing to look for on a master plan is infrastructure and zoning changes. Look at where new railway stations will be built or where are new roads planned for. These things will give you an idea of where new dwellings will be. Look at where the industrial zones are; where the council is proposing to build a new shopping centre; if there a new school zoned or planned. Even look out for park land. This information will tell you where you should be looking for your new development site and where you should not. Remember, it is vital to check with the council about anything you are unsure about. A visit or a phone call can save you from losing thousands of dollars.
8. Streetscape – now we have chosen our area let’s find our street
When I talk about streetscape I am referring to the entire street and surrounding streets. Streetscape is very important in understanding the psychology of the current home owners or perhaps tenants, who will – if you purchase here – become your temporary neighbours and/or possible objectors to your project. Take time to study the streets.
Looking at the homes and the way the street is laid out will tell you if you will have a problem with ‘busybody’ neighbours, or if they will not even know you have applied for a permit. Probably one of the most significant checks that you will do will be on the people in this locality. When you do your study of the area and movements of the people who live there, make sure you carry this out over at least a few days, if not a week. Drive through the area at different times of the day, on different days, and preferably over a weekend, to see what is happening. Do the housewives get together to chat? Do people chat in the street? Perhaps there are Sunday barbeques which everyone enjoys. Are the homes well maintained, with manicured with lawns in top condition? Or is it the type of place where you would feel less safe? If it is the latter then it is most likely the area has a high number of tenants and it is highly likely the council and property owners will welcome change. If, however, there are regular Sunday barbeques, mother’s club meetings and yards that look neat and basically clean, then it is likely you will face objection to your project.
Next – look up! Yes, you read correctly – look up! Everyone tends to look down and around but not many people look up. Look up to see how the roof line of the houses forms the streetscape. Scan up and down the street – look at the roof lines of all the homes in a street and you will notice they will, in most suburban areas all have the same ‘line of sight’. This means that it runs in one straight line. Most people don’t realise that in most cases councils will base their decision on whether to allow double storey (DS) or single storey (SS) development on this line. This line will tell you if a double storey building will be out of character or whether it will fit beautifully into the existing neighbourhood’s character.
9. Preceding property
One of the most common mistakes made by first time developers is using the precedence theory. For Say there is another property in the street in which you hope to develop, that has been granted approval for a development which is the same in nature as what you are looking to build. This encourages you base your application along the same lines. But while it is always important to look at what others have done and then do as they have, it doesn’t always work that way.
What matters to you if what has to be done differently. You need to look at any conditions on a piece of property that has been subdivided. There might be conditions on the title such as a covenant. It may not even be possible to subdivide the land. You should also investigate the DDO (the Council Design Overlays) before you commit to subdivision. It may be different and have condition attached such as vegetation or other forms of overlay that could limit or even prevent subdivision. It is important to consider each property on its own carefully as it could be misleading to the eye.
10. Line of Sight
While the line of sight for a streetscape carries great weight with a council you need to be careful about the topography of the area. Let’s say we have a 500 metre street with a slope of 5 metres from one end to the other. At the bottom end of the street there is a three storey dwelling (9 metres high) and your proposed development site is at the other end of the street, on the high end. Because you want to build a similar building, you make a decision based on ‘precedence’ alone, i.e. there is one in the street already and you believe council will have to acknowledge this. This is WRONG!
Let’s look up first. By looking up at the line of sight from your site and then down the street, you will see the roof lines pretty much have an even flow, so as the street falls the properties become higher and as the street gains height the properties become lower. This means if you were to place a three level townhouse (9 metres) on your site it would be 5 metres higher than the one at the bottom end of the street and it would look very out of place.
The council, in most cases will override the precedence and reduce your dwelling by 5 metres to ensure the skyline remains consistent. This rule of thumb for Council keeps the height for each dwelling at a constant level throughout neighbourhoods.
11. Neighbourhood character
We touched on this before. We mentioned that street character is made up of a few things; neighbours, homes, roads, signage, trees – and all of these things will tell you how and what type of dwelling will be in keeping with the character of your street.
Old Edwardian homes with tree lined streets usually attract a home owner, not an investor, with an appreciation of the area who will, in 99% of cases, be very vocal against any new development proposal within the area. They want to retain its integrity. So, if you are thinking you will be able to erect an ultra-modern home in an Edwardian tree-lined street, think again. You might as well go and burn your money, as you will end up in VCAT with most, if not all, of the neighbours and the Council against you.
Remember, the street’s character not only shows you what type of home you will need to build there but also what type of people you will be dealing with. If, for example, you have a street where there are broken down cars and scrap metal in the neighbours’ driveways and on their lawns, and if the homes are not well maintained, it is highly likely it is an area with a high rental component, and it is unlikely you will get many objections from your neighbours. You’ll find these homes are most likely owned by investors who will welcome the new proposal as a positive for the area in both clean-up value and monetary value.
This view will also be taken by the Council. The likelihood of new dwellings in a low income area increasing the prices for rent is inevitable and eventually the quality of the tenants and the homes will improve. This is probably, from an investment and development point of view, a great place to purchase property, develop and hold until the rest of the area catches up. I have seen property in areas like this double in price very quickly once developers start construction. On the down side though, it may take many years for this to happen.