Land dropped in value? You still have positive development options…
It’s a good time in the property cycle to buy land and develop, as the prices are reaching the bottom of the cycle, or as some experts predict, we are already at the bottom. Building prices and times are also currently very low, so if you buy and build now, you will most likely get a great Return on Investment.
If you bought your block of land before the market started to go backwards, you may be wondering at this point if there is any way you can still profit from your investment or if it is worth doing anything at all. There are things you can do, unfortunately none that can guarantee a profit, but you may be able to minimise the loss so that you can move forward and potentially look at capitalising on where we are in the property cycle.
The 3 options you have are:
- Hold onto your block until market improves.
Waiting for an improved market to either sell or develop in is of course an option if you can afford to write off the interest rate payments. As it is impossible to accurately predict when the market will start to improve, or how long it will take to improve enough to make a profit, you may be waiting a long time. If you are considering this option, make sure you take the interest payments into your calculations when weighing up what to do.
- Sell the land now.
This should be your last resort as unless you are very lucky, the chances are you will attract the lowest possible sale price, resulting in a loss on your investment.
Costs in selling the land now that need to be also considered are:
- Selling agents costs
- Stamp duty on the next property
- Holding costs while you are selling the property
- Potentially any capital gains tax.
- Move forward and build now
By moving forward and building your development and selling or renting out the units will release capital so that you can look at future profitable projects by making the most of the current position in the property cycle.
Consider the following reasons:
- Building costs are never going to be this cheap again. For the very same reasons that your site is worth less, building costs have dramatically become cheaper.
- Even though you are most likely going to realise a capital loss if you move forward with the project, the loss will offset any future profits that you make on additional projects.
- Work with a builder who is a development specialist, as their expertise in the market can help minimise your loss.
- Remember, any developer who has been doing developments long enough has lost money on a project – the truly successful ones keep going to make money on others.
Whatever you decide to do with your block weigh up all the options to help decide what is best for you financially and make sure you speak to the experts.
Ventura iD and Multi Living Developments offer a free consultation service so you can see if developing is an option for you. Call (08) 9241 1611 or visit ventura-id.com.au, multilivingdevelopments.com.au