How to subdivide
There may be no need to buy elsewhere – subdividing your existing property can really pay off
Looking to cash in on the property boom? If you already own an investment property or your own home, there might be a way to take advantage of soaring prices without having to buy again. Subdividing is gaining traction, especially in Sydney and Melbourne, where land values have soared in the past 10 years.
Activity across the country grew by 2.7% in 2016 to $33.06 billion, according to the March Renovations Roundup from the Housing Industry Association (HIA). Shane Garrett, HIA senior economist, says 2016 marked the strongest year since World War II for new home building starts.
What makes a good subdividable property? For a start you need a thorough understanding of the local market. Your investment is only going to be worth it if the existing property is in an area of low supply and high demand – you can get a feel for this by having it assessed by a valuer.
If it has gone up in value considerably over the past few years, subdividing could be a great way of realising the full potential of your land. On the downside, it does involve large costs and a lot of time and effort.
CHECK THE RULES
First, find out if subdividing is even an option. Each council has rules and regulations that differ greatly from area to area. Before spending money on a property surveyor or town planner, it’s a good idea to check the town plan to get an idea of the minimum lot size
requirements and zoning restrictions. Some types of zoning don’t allow subdivision.
If it’s doable, your first point of contact should be a surveyor or town planner. They will help you identify how many lots you can create according to the property’s size and incline, and draw up the site plans to lodge with the council. There are a few different types of subdivision to consider – for example, you can split your block into two or more lots and build on the vacant land, or you could convert your title to strata and build a block of units. What you can and can’t do will depend on your council.
Subdividing can be an expensive process. Before you even think about building on your potential new lot, consider the planning and application costs. Justin Eslick, director of the Investigate Property buyer’s agency in Brisbane, says consultants will be one of the biggest expenses, costing around $17,000 on average for a fairly straightforward subdivision. Complicated projects requiring extra professional services to meet council regulations will cost more.
“The rules and minimum lot sizes differ from council to council so a local planner for your area should be your first port of call,” says Eslick. “For a small lot subdivision, at the very least you will require a surveyor, a town planner (or a surveyor who can carry out the town planning on your behalf) and a civil engineer. These three will get the job done for the majority of projects but for more complicated sites additional consultants
such as an architect, acoustic engineer, traffic engineer, arborist and certifier may be required.”
MAKE THE CONNECTIONS
Most local councils will require your new lot to be connected to water, drainage and sewerage, even if you’re selling it. It sounds easy but it’s often a complicated and expensive process.
According to Gateway Survey & Planning in Queensland, in a minor subdivision it can cost between $50,000 and $100,000 to connect a new block to water and sewerage. It’s a big expense to consider, especially if you’re looking to subdivide a big block into several smaller lots. In any case, you’re definitely up for a significant outlay.
Eslick says the cost of connecting to water and sewerage is hard to pin down in the planning phase because there may be unseen complications. Sometimes access to both connections might involve digging on a neighbouring property, and in some council jurisdictions if you don’t get permission from the neighbour you won’t be able to subdivide at all.
“Sometimes connections to water and sewerage are straightforward. Other times you may need to bring them from some distance away and underground, which if you haven’t allowed for it can blow your feasibility right out of the water immediately,” says Eslick.
“A new water and sewer connection can range anywhere from about $7000 to $50,000, and on the odd property even higher than this, depending on where the services are located. You can’t therefore just apply a nominal figure in your feasibility each time you investigate a purchase.”
WAIT, THERE’S MORE ...
Complying with council regulations can take up a lot more time and money than you expect. You have to consider the slope, road access, the position of your existing property and whether partial or full demolition is necessary for development (or, depending on the age of the dwelling, even allowed under heritage laws) and the difficulty of removing any existing vegetation on the new site (and depending on the species, whether it can be removed at all).
The slope of the land is a big one in terms of how much it might cost. If the council believes there are issues with overland flow in particular rain events, it may require a hydrological engineer to fix things, which can cost you up to $5000 and take a couple of months to sort out, if it’s even possible.
“In many cases you need to capture all the rainwater that falls on the site, not just roof water, and then direct that to a lawful point of discharge,” says Eslick.
“Generally councils do not want to be creating new flood-affected properties, and filling these sites in order to get above flood levels often isn’t possible as the result can be the displacement of water into other people’s properties. In instances where filling is required and allowed, the cost can quickly get away from you and there is usually a maximum level you can fill to,” he says.
As for road access, Eslick says existing infrastructure might make this process difficult and expensive. Take notice of any nearby traffic islands, intersections, bus stops and street trees. The council may also request that you pay to complete the kerb and guttering for the new property. Fifty metres can cost up to $30,000.
Costs for subdividing will vary but in most cases it’s a significant outlay. If getting your DA approved is going to cost you around $100,000, it’s worth considering whether you need to build on the land before sale. Perhaps just subdividing and selling off the vacant land will be enough to turn a profit. In any case, make sure you discuss projected costs with your surveyor or planner and accountant.