How to find the perfect development blockJanuary 30 2017
With a number of new development site opportunities up for grabs around the Perth Metropolitan area, developers have a prime opportunity to lay the foundations of a lucrative development. But how do you find the perfect development site?
Not all lots are created equal and it is important that anyone seeking to purchase a new development site understands 5 key factors that could greatly influence the profitability of the project, the cost of the build and the ability to achieve your development goals.
5 key factors to finding the perfect development block
The most important factor to finding the right development block is to find the right location. Just like choosing an investment property, you should firstly narrow down the area where you would like to look for available lots, rather than looking for what’s available and then trying to work backwards.
To select the search location you need to consider if the location provides easy access to:
- Public transport – including high frequency bus routes and train stations
- Main arterial roads
- Employment opportunities
The zoning of your chosen block will determine how many units you will be able to build. It is important that you understand the R-codes and zoning that apply to any block you are purchasing to ensure that the subdivision of your block is maximising your investment.
It is also important that you are aware of any local government regulations that may also apply to an area, that can limit the kind of developments you can undertake. Ensure that you understand any proposed changes to zoning or planning regulations in the local government area that could either improve or hinder the profitability of your development. This is particularly important if you are not going to develop on the block right away.
Certain councils have recently undergone zoning changes which could positively affect the profitability of a chosen block. The City of Swan, City of Melville, City of Wanneroo and the City of Cockburn have all made such changes.
3. Total price including site costs
Ideally you want to turn a profit from your development, therefore it is important that you ensure that the price you pay for your block will allow you to make money on the project.
Just because a block is the cheapest available in that area, does not mean that it will be the most profitable. You need to consider elements like site works and the number and type of units that can be built on the block to properly evaluate the profitability. It is best to look for a block that will have minimal site costs and other costs associated with developing a block.
By speaking to a builder you can do a basic calculation to determine the profit potential of a lot. For example, if you were to buy a block for $450,000 that would allow 4 villas, which would have the resale value of $390,000 each, here is how you could calculate the possible development potential:
Cost of Land: $45,000
Cost of all fees, charges and sales: $200,000
Cost to build including site works: $800,000
Total Costs: $1,450,000
Sale of units: $1,560,000 (4 units @ $390,000 each)
Possible profit: $110,000
The shape of the block will also determine how many units will be able to be built and the configuration allowed for placing the units.
Due to the shape of the block you may need to reduce the number of units you want to build, or alter the unit designs from one storey’s to two storey’s to provide the product that will appeal to the end buyer.
If you are looking at an odd shaped block it is important to speak to a builder prior to purchasing a block to ensure that you will be able to build the type of product you envisage.
The topography is the slope of the block. If a block is very steep it can also limit the amount of units that can be developed. It may also mean that the block will require retaining, which will add greatly to the site works costs of building.
If you are buying a block that has an existing house on it, sometimes it is hard to gauge the topography of the land when there is a house and garden already established. If you are unsure and there are no land survey details available, make sure you speak to an expert to reduce the chance of nasty surprises once the block is cleared.