Subdivision is one of the many ways you can develop property. It involves converting one piece of land or existing dwellings into several.
Raw land subdivision entails legally and physically converting raw, undeveloped land into developed land so that one or more buildings - residential, commercial or industrial - can be constructed. As you will be changing the lands usage and appearance for example perhaps from a rural rezoned paddock into a residential land subdivision, you’ll also be building the infrastructure required such as roads, paths, drainage systems, water, sewerage and perhaps even public utilities such as a park.
You can also subdivide developed land (much more easily) by simply splitting a block in half.
Subdivision of existing buildings is the conversion of a single title to multiple titles. For instance, a block of 10 units on a single s title - often referred to as units ‘in one line’ – can be converted into individual titles such a strata title. This is a great way to add value to the properties and allows you to sell them off individually.
Subdivision gives you flexibility to sell off a newly created piece of land to reduce your loan, or to hold and add value to the property by registering the new lots and holding or further developing them. If there is a income producing dwelling on the land you are subdividing, then this can help offset your holding costs.
Be aware of holding costs if you are buying land to subdivide as subdivision can take a long time and you need to have the ability to pay the holding costs; interest payments and council rates, whilst waiting for the subdivision to be completed.
When to subdivide
An investor might buy a dwelling that is on a large piece of land, where they can renovate a house and then subdivide or perhaps you are a homeowner living on a potential development site where subdivision may be permissible. The site will however, need to adhere to the council regulations.
The first question you need to ask council is what is the minimum lot size?
You can find this out from your council’s Development Control Plan for Subdivision and their guidelines. The minimum lot size will vary from council to council and from different zonings within each council. For instance, the residential minimum lot size will be smaller than the rural zoned land size.
One council Property Bloom works with has a residential minimum lot size is 450sqm. So we can subdivide a 900sqm corner block into two lots. However, if we had a 900sqm piece of land that was not on a corner, then we could not subdivide this, as we also need to allow for a driveway to access the back lot. The area needed for the driveway is in addition to the minimum 450sqm. So we’d need land approximately 1100sqm in size to be able to subdivide and allow for our access handle.
Another type of property to look for is land with two street frontages, so if it is 900sqm in size and the minimum lot size is 450sqm you can literally cut it in half and each lot will have its own street frontage.
Different types of Subdivision
When developing land using subdivision, it’s important you understand the different types of subdivisions. Getting professional advice from a local surveyor will help you to make the best decision for your site and also which potential purchase will make the process through council the smoothest.
Strata Subdivision – Dividing a property into separate units, apartments or villas. Strata is land title based on the horizontal division of air space and may involve common areas shared by each title holder and usually managed by a strata manager. Land alone can also be strata subdivided.
Torrens Subdivision – Dividing one land lot into two or more separate land titles. This form of subdivision gives the owner complete autonomy with their land as they don’t have to answer to the strata manager or adhere to certain strata rules and regulations.
Community Subdivision – A development with common property such as roads may be used by all residents.
The Feasibility Study
When budgeting for your subdivision you’ll need to start with a realistic end valuation. How much will the completed development will be worth? Then subtract the costs to calculate profitability.
Sounds simple right? Wrong. There are a lot of costs involved with land subdivision, particularly Torrens Title subdivision.
It’s important to run a detailed feasibility analysis on the subdivision including possible costs for; stamp duty, legal fees, surveyor services, council application and developer charges.
In NSW Section 94 or 94a charges can be very hefty – these Developer Contributions fund the infrastructure which supports the basic needs of population growth and new development. Right now there is a cap of $20,000 in NSW for Section 94 charges per lot, but this can be a lot less, so check with your local council. OR, the council can negotiate a higher fee with the Development Application (DA) applicant if warranted. So call your council and check what they charge, you’ll need to factor in this charge as it can make or break your profit.
Then there is the civil works – kerb & guttering, footpaths and service connections such as sewer, gas, electricity and water costs. Sewer extension can be costly and will be dependent on the application made to the local water authority.
Each proposed development is unique and requires an investigation by the water authority to determine the impact of the proposed development on existing water and sewer systems, and whether works need to be built, (i.e. the developer may need new reticulation systems and lead-in mains) to provide connection to water and sewer mains.
After an application is made, a 'Notice of Requirements' letter will be issued. This Notice will, in most cases, detail what’s required in order for the water and sewer facilities to be provided to the proposed development.
The requirements for your development may include:
- Payment of a recycled water developer charge (if applicable)
- Design and construct water and sewer infrastructure specified in the notice necessary to serve your development. Depending on the size and extent of the development, this may include a requirement to prepare a water and/or sewer servicing strategy
- Transfer of the infrastructure to the Corporation.
You can do some homework on the local water and sewer infrastructure before you purchase the land to get an idea of what works may be required.
Make sure you also discuss your subdivision strategy with an accountant and understand the possible tax and GST implications if you are planning to sell. You will also need to estimate your holding costs such as interest on your loan and rates. Remember, if it’s a straight land subdivision you won’t have an income from the property to help offset your holding costs, so time is literally money in this type of development.
Property Bloom looks for the best way to subdivide as part of our development process, the most cost effective and quickest way may not always be the most obvious. What may look like a simple subdivision can turn into months and months of complicated work. The plumbing and civil works alone can really blow out a budget, so it’s important to understand the entire process before you embark on your first subdivision.
There are many things to consider when planning a subdivision, so make sure you engage professionals to assist you if you’re a beginner. A development project manager will be able to work with you on every stage of the process and you’ll be amazed at how much you learn along the way.
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker
“I was bitten by the property bug, there was no turning back.”
Jo Chivers proves that women can indeed have it all- a career that you are passionate about and a family. While all of this sounds great, it does require hard work, dedication, perseverance and a bit of risk-taking.
Jo’s love of property development inspired her to leave her corporate career and pursue her true passion. After educating herself in property investing, she started building up her own property portfolio. After purchasing a few blue chip properties in Sydney, she soon realised how negatively geared they were and began researching outside of Sydney. She discovered a more affordable, large region of NSW where she completed her first property development. Soon her friends were asking her to find them sites and manage their developments.
She realised there was a need for an all encompassing project management service and her business Property Bloom™ was born. Ten years down the track, she has developed over 60 properties for clients, creating literally hundreds of thousands of dollars in equity and high end yields.