With 20 years of experience in land development, it is interesting for me to consider what are the important issues when completing a small land development. The reality is that every project is different and I continue to be challenged with new problems to solve and issues to overcome. In my experience, I’ve managed many projects from 2 lots to 4,000 lots in size, with the size of the development being a big factor in the nature of the obstacles that need to be overcome. For this article, I thought I would focus on the issues that are likely to be encountered on a smaller 2 – 4 lot project. (Brenton Downing, Managing Director – Celsius Land)
1. Pick the right team of consultants and contractors
This point is the most crucial. If you get this right then your team will be a great help with the following points, if you get it wrong then this will exacerbate the issues raised below. In this regard, you should look for consultants and contractors who are experienced in the work that you are undertaking and who will be an asset in your negotiations with important stakeholders such as your neighbours and the local council.
If you are going to project manage the job yourself then this team should consist of a town planner, surveyor and civil engineer as a starting point who are experienced in small subdivisions. This team will be able to advise whether the subdivision is possible and provide an indication of expected costs.
On the revenue side, you should talk to a local real estate agent regarding the demand for residential land, what lot sizes the market is looking for and expected pricing. Tax advice is also important, particularly in regard to potential capital gains tax implications if you have been living in the property. The initial advice that this team provides you will be critical to you determining whether the development makes financial sense.
Additionally, this advice will inform you on the costs and benefits of proceeding with a green title (no common area or shared services) or survey strata (common areas and/or shared services) subdivision.
“Successful investment is about managing risk, not avoiding it.” – Benjamin Graham
2. Determine if the development makes financial sense
Whilst many sites can be subdivided, it often doesn’t make financial sense to subdivide them once all costs have been taken into consideration. Some of the key things that can impact this include:
- Can an existing house be retained to maximise revenue whilst still being able to subdivide the 2nd block of sufficient size?
- How much rent will be lost and interest paid during development?
- Will I make sufficient profit to justify the development?
- How much additional tax will I need to pay, in particular, capital gains tax and land tax
The best way to consider the above is to complete a feasibility, including all expected revenue and all costs, including interest, rent and tax after consulting with the development team discussed in point 1 above.
3. Closely manage your relationship with your neighbours
Your relationship with your neighbours is important because of the potential impact it may have on obtaining approval for your subdivision, the potential for future objections on the new homes that are planned and your ongoing relationship if you are going to build and live on the subdivided block.
In regard to the subdivision of your block, below are some of the issues you should talk to your neighbours about in advance. It is important that neighbours become aware of these issues from you and not from the Council or when contractors start work on site:
- House demolition – If your project requires demolition of your house or any other structures it will be important that you have a plan with your demolition contractor in regard to asbestos removal, the schedule, noise and dust control. You will need to share this plan with your neighbour and inform them when works will take place. You will also need to reassure neighbours that their property won’t be damaged if they have any structures that abut your common boundary. Regular site visits and discussions will be important at this time.
- Changes in levels – when completing a subdivision you will often want to earthwork your block to create a level site. This will depend on what you want to achieve out of your build and the acceptance of building on sloping sites in your local market. It will be important to consult with your neighbour early regarding the need for any retaining walls, the type and height of retaining walls you are proposing and the impact this may have on their property.
- Fencing – New fencing with multiple neighbours can create challenges. If replacing fencing you will need to consider what fencing type and colour your neighbour has on their other fences. The installation of new fencing may also trigger alignment issues when the old fence hasn’t been constructed on the boundary, which is not uncommon.
- Compaction – Compaction of the soil for any earthworks you undertake can cause vibrations at neighbouring properties which will create concerns regarding cracking and broader damage to their home. You may want to consider a dilapidation survey that documents the condition of a neighbour’s home before the works are carried out so you are able to establish any damage caused by your works. It will be important to make your neighbour aware when any works causing vibration will occur.
Early communication is key!
4. Beware surprises in the ground
If you’re demolishing an older house one common item that can come up is previous uses. It is worth checking online aerial photography to review what has occurred at the property in the past, for example, a common issue is swimming pools being filled in without demolishing the existing structure which will cause ongoing drainage issues.
Most states will have free access to aerial photography, for example, you can access aerial photography dating back to 1953 in Western Australia through Landgate. Other issues from previous uses can include asbestos fragments in your yard from fencing or structures that have previously been demolished.
5. Expect the unexpected
There will always be surprises that come up along the way that aren’t listed here. Many of these will be initiated by the local council or planning authority, and you need to allow a general contingency for items such as additional planning reports, planning appeals and lost time, tree protection and other unknown items.
Well, here are my top 5 tips for small land developments. Whilst a small project like this is certainly manageable, if you are unsure whether you have the time, patience or ability to complete this then it is worth appointing a project manager to manage this process.
About Celsius Property Group
Thank you to our guest contributor Brenton Downing, Managing Director, Celsius Land.
Celsius Property Group is an integrated property group incorporating Celsius Property, Celsius Finance, Celsius Developments and Celsius Land. As real estate specialists, they offer an end-to-end property service that doesn’t just meet your expectations, it exceeds them. Backed by decades of experience, and with proven processes throughout the business, Brenton and his team aim to make all aspects of property as simple, stress-free and financially rewarding as possible. For further information visit www.celsius.com.au.