Can I subdivide my property: Required services and creating value?

Property subdivision

Are you looking to see if you can subdivide your current property or trying to find an investment property that can be subdivided?

This is the second post in a two part series that walks you through the steps and tips, which you should consider in order to identify the key facts about a property. The first post ‘Can I subdivide my property: Planning schemes?’ covered what is classified as subdividing and how to establish if a property lot can be subdivided.

Series Cont.

2. What services are available and what engineering works are required for a new lot?

Where there is the creation of new lot(s) in a subdivide, you need to ensure they are connected to water, electricity, sewerage, storm water, and phone/NBN infrastructure as well as potentially covering modifications to the existing road, kerbside and guttering.

Adhering to and implementing these requirements can vary the cost of a subdivision considerably based on the property lot in question. The connection of water, electricity, and phone is typical fairly easy. Connecting services such as sewerage and storm water however can pose more significant and costly challenges.

Each council has different rules and approaches though the majority require that if access to a sewer or stormwater main is located on a neighbouring property, you will require written permission from all owners (as well as restitution of development work on their property) to be granted development approval. In some instances a council will have the power to force access on your behalf where there is an uncooperative neighbour, though this can be a drawn out process having to exhaust all negotiation options first.

Tip – A property with topography that falls towards a street will have a greater chance of having direct street access to sewer and stormwater mains due to sewage and storm water infrastructure running under the principle of gravity in most situations. Vice versa if a lot falls away from a street, mains will pass along the lowest point or through a neighbouring property.

3. What headwork charges or contribution fees are required to be paid?

Councils will levy a headwork charge or contribution fee on new developments, by lot, to cover increased infrastructure costs e.g. roadwork contributions, parks, sewage treatment, etc. Obviously these fees vary substantially by council though at a minimum in capital cities you will be looking at $20,000 plus.

These fees are independent from the cost of the construction of new infrastructure, or the provision of new connections to existing infrastructure in meeting the required services mentioned in step 2.

4. Does investing in a subdivision stack up?

As touched on the associated costs of a subdivision can vary substantially by each lot, with different constraints and service requirements coming into play. But additional costs some investors don’t account for is the reduction in cash flow if it is a rental property, the increased interest costs required to finance a subdivision, and the time cost it requires for an investor to manage personally.

As a rule of thumb I look at an end to end subdivision process costing between $50,000 – $85,000. A local town planner will be able to provide a much more accurate estimate for you.

Taking these costs into account you then need to establish if there will be enough value created by subdividing as apposed to pure capital growth from leaving the lot as is.

5. Proceed with a development application?

At this point if you have decided you want to proceed with a subdivision (reconfiguration of a lot) you should engage a professional town planner to prepare and submit the development application to council for approval.

Finding a site

Finding a site that can be subdivided isn’t that difficult, finding one that will deliver you long term value is. In its simplest form the popularity or demand for the area needs to be sufficient enough to have buyer’s or renters willing to pay premium prices for a smaller lot size.

Things I look for (personal choice and shouldn’t restrict you):

  • are there other subdivisions in the area? This indicates the council is not only open to subdivision but there are buyer’s willing to purchase them. It also makes valuation easier;
  • I typically only consider lots that are at a minimum 800 squared meters plus with a 20m width; and
  • I also like corner blocks.

For investors who want to subdivide I would recommend finding a buyer’s agent who is familiar with subdivision developments and has experience in specific cities.

Other tips

  • The ATO provides information in regards to capital gains tax on subdivisions here;
  • If you have a mortgage on an existing property (or taking a mortgage out with the intention to purchase a property), any plans to do a subdivision or demolition should be approved by your lender.

Resources

Brisbane City Council

Find information about subdividing your property on the Brisbane City Council website

How to conduct a property enquiry using PDOnline

Brisbane City Plan 2014: Guide to the interactive mapping tool

Melbourne City Council

Get information about your planning scheme

Sydney City Council

Guide to property enquiries video

About the Author: David is an avid web, finance and property geek who decided to combine these interests and found BAG in his spare time. If you have thoughts, issues or questions you can find him at LinkedIn, Google+ or alternatively drop him an email david at buyersagentguide.com.au

Leave a Reply