Choosing the right block of land is one of the most important decisions a property developer will make. Once all of the appropriate finances are in order, there's still a great deal of research to be done before an investment idea can be brought to life.
To the untrained eye, distinguishing one block from another can be difficult. However, problems with a potential development block can lurk in the most unlikely of places, from the surrounding neighbourhood, to the soil, to the R-codes.
As the block of land, a developer chooses can make thousands of dollars of difference to construction costs and/or building opportunities, it's important to get things right first time around. In fact, in a worst-case scenario, a poorly chosen block of land could represent the difference between making a healthy profit and making no profit at all.
Choosing a block that's easy to work with keeps costs to a minimum, while purchasing in the right location ensures that you have the draw and appeal you need to attract good buyers and sell at a higher price in order to maximize profits.
Whether the challenge is finding land for a multi-unit development block, duplex, or triplex, this guide will help to reduce developer risk, while maximising potential profit.
Measuring a Block of Land: Why Size Matters
Savvy developers know that they don't want to be paying extra for space they can't use. The aim for most professionals will be to find a block that provides flexibility by allowing them to build several units, without leaving too much "excess" land left over.
Typically, it makes sense to subdivide large blocks into as many dwellings as possible, as this can result in higher profits than building less units on the same block. However, would-be property developers have more to think about than just square metres.
In the right circumstances, even when local council rules allow for a greater number of residences to be built, it pays to build fewer homes that can be more attractive to higher-paying buyers which could lead to bigger profits.
This is where a solid feasibility study is so important.
Looking Beyond Size
Though size does matter when choosing the ideal block of land, it's also important to keep other factors in mind. For instance:
- Block shape, frontage and slope: Before a developer begins to search for the perfect lot, they'll need to develop a general idea of the frontage of popular investment designs to ensure that the selected block can properly accommodate their preferred design. Sloped blocks can impact costs, for instance, as they may require additional retaining walls and split-level designs.
- Soil conditions: Soil conditions are an oft-overlooked but crucial factor of choosing the perfect block. Developers can invest in professional soil classification services to determine whether the earth they want to build on includes a great deal of water, sand, or stone. Soil problems can impact the stability and safety of a development, so it's critical to seek the support of a structural engineer for an independent assessment.
- Planning control and overlays: Complex controls and covenants can stop developers from building their preferred home design on a lot. Everything from materials, to shapes and size choices can be affected by planning covenants, so it's important to check local regulations carefully before making an investment.
- Utilities and easement: An easement is a section of a property that has an underground service installed which cannot be built over. This effectively reduces the useable area of the block and can impact the building design choices available.
- Site works: Site works include the preparation works that must take place on a block before a home can be built. The costs of these works can vary greatly from one site to another, though they can be minimized with the selection of the right block. Site works can include stormwater disposal fees, connection fees, and earthmoving costs.
- Verge Items: Developers should check the following features to ensure they aren't impacting the chosen block or preferred position for the development: verge trees, internet connections, hydrants, power poles, sewers, access ramps, footpaths and side entry gullies.
- Roads and Parks: If the preferred lot is located on a new estate, it's important to consider the proposed master plan for the area to determine proximity to any main roads, parks, and community facilities. This will help developers to confirm the potential value of the block in the future.
- Connectivity: As today's buyers and tenants often rely on internet connectivity when making a home purchase, it makes sense to check which utilities and fibre optics are available for the development to connect to. Besides broadband, look for water, electricity, sewer, and stormwater facilities. While these utilities are often available in suburban estates, they may not be readily included with new lots of land.
Development Planning and the Importance of R-Codes
Getting to know the characteristics of a block of land as early as possible is crucial because it ensures that there's minimal chance a developer will have to deal with budget-damaging expenses at a later stage. During the planning and preparation phase, it's important to learn as much as possible about the R-Codes for the chosen lot.
R-Codes dictate how many residences can be built on any given block of land, with each dwelling featuring an average "minimal" site area. For instance, with an R-Code of R20, it's possible to build 20 dwellings per hectare of land. Of course, it's fair to say that R-Codes are generally more complex than they seem, covering more than just block size and density. Other factors that will determine the best use of a block of land include:
- Maximum lot ratio
- Type of dwelling
- Minimum open space requirement
- Required boundary setbacks
- Area streetscapes
- Access and parking needs
Understanding R-Codes is critical to unlocking the full potential of a block of land. By offering an insight into how many properties can be built on a block of land, R-Codes help developers to determine how feasible a project might be, and what kind of profit they can set themselves up for.
Though R-Codes can be difficult to understand, a basic rule of thumb is the higher an R-Code number is, the higher the housing density permitted. Knowing the right R-Code means that a property development team can do the correct calculations to work out how many properties are available to build on the block. Development requirements will vary from one council to the next, though a builder with specialist knowledge in property development will be able to aid here.
Finding the Ideal Location
Though the size and potential are obviously important factors, the location of a development site is perhaps the most crucial element. Close proximity to amenities can be a valuable boon for developers because it increases the desirability of the property. It's worth checking out the neighbours on all sides of the property to make sure that there are no dog breeding kennels, car workshops, or noisy businesses that might make the location less appealing to potential buyers.
Additionally, research into a local area can reveal important information about crime rates, new infrastructure propositions, population growth, and changes in culture. Many property developers trust their intuition when choosing a location, but the more information you have the easier it will be to make an informed and confident decision.
Property hotspots are a great place for developers to start looking for investment opportunities, so it's worth keeping an eye out for trending neighbourhoods that are growing in popularity. However, it's also possible to get ahead of the trend by looking for new developments that are key indicators of potential growth, like hospitals, schools, transportation links, shopping centres, parks, and more.
The area a developer chooses should have a strong sense of community and neighbourhood peace, afforded by curb appeal, attractive landscaping, and various great places to visit like bars, restaurants, cafes, or even sporting facilities. Even if an area doesn't appear to be very attractive right now, that could be about to change thanks to government policies and urban renewal programmes. Even areas that are located close to other hot-spots can benefit from a ripple-effect in popularity.
Often, the easiest way to choose a prime location for a building development is to think about the kind of things a target buyer might be looking for. For instance, developers hoping to sell to younger couples and individuals might look for fun local amenities like bars and clubs, while those planning to build family residences should be looking for schools and parks.
What If There's Already a House on the Block?
In the right circumstances, a remaining house on a large lot could set-up a strong investment strategy for a new developer. Stage developments that involve building one home before the next property is constructed can be a fantastic starting point for professionals who want to keep their initial expenses to a minimum. These opportunities can also be a great option during times when market conditions might not support selling of several properties at once.
In some situations, a developer may want to demolish the existing home on their chosen block so that they have a brand-new lot to work with. In this case, it's important to factor in the costs of demolition into the initial feasibility.
Those who plan to hold on to the existing home and build around it should look for a block that is at least 700 square metres in size, as this will ensure there's enough room to build an additional property on the site. Though most developers will work on a minimum investment of 330 sqm for each dwelling in their block, the size requirements will depend on local R-codes and the need for additional amenities like driveways, garages, and gardens.
Choosing to keep the original dwelling does create potential issues during construction, so we recommend talking to a subdivision expert before proceeding.
Pricing and Budgets
Finally, it should go without saying that sticking to a budget is crucial for a developer in search of the perfect block of land. Real-estate experts want to have enough money remaining at the end of their build to finish their property and sell at the highest possible price. Reserving money for finishing touches like landscaping, carpets, light fittings and window treatments can be critical when it comes to improving the value of a property.
It's also worth noting that there can be restrictions in some areas when it comes to determining what kind of properties can be built. Restrictions regarding the building materials allowed, colour schemes, and energy rating requirements can be important for a new developer to be aware of.
Importantly, in some areas, developers will be expected to stay true to the existing style and atmosphere of a surrounding neighbourhood when building new properties. A builder specialising in property development projects can often carry out feasibility studies on behalf of a developer, complete with modelled options, cost analysis, and price insights into what local buyers might be looking to invest in.
Due diligence is often the only way that developers can ensure that they're going to be able to get the most out of the block of land they choose. The right research ensures that developers select not only the right block in the right location but build units that have the best potential to secure a profit at the end of the project..
Finding the Perfect Development Block
As we have discussed choosing the right block for a property development project is one of the first, and certainly one of the most crucial, steps that any developer will take.
It's always going to be difficult for developers to find a block of land that ticks all of the boxes, but with some research, site visits and due diligence a developer can go into an investment with their eyes wide open.