Doubling or tripling your initial purchase price in a short period of time sounds like a great deal, right? Proponents of subdivision push it as a way to make more money fast, but how easy is the actual process and is it the right investment strategy for you?
What is a subdivision?
Put simply, subdivision entails the conversion of a single block of land into two, or more, plots. The scale of this varies immensely. It could be that you are converting a rural zoned block of land into smaller residential blocks, or splitting your current (developed) property into two.
While these two examples differ greatly in scale, each involves following a legal process to rezone the land and both carry important feasibility considerations.
Subdivision: what kind of property do I need?
Many people think that in order to subdivide a property, you need to purchase a large block of land and create multiple allotments. That’s not always the case – many seasoned investors choose to subdivide a single suburban block as an investment strategy, should local planning guidelines allow for it.
This way they get to capitalise on the property’s land value, whilst maintaining the existing property as a source of cash-flow. Many investors keep this in mind when selecting an investment property, and opt to purchase a larger block size in an area where the development rules are geared towards easy subdivision approvals and demand for vacant land or new properties is high.
In many suburban locations you can subdivide your existing property to create wealth. In fact, this may be the simplest form of subdivision and a great way to create enough equity to fund further investments.
Many investors select properties with larger blocks in order to capitalise on this potential later on, either by simply subdividing the block and selling the new piece of land, or by developing a new property on this piece of land and selling it on, or adding it to their existing portfolio.
Simple land subdivisions may require little more than applying for planning permission, and supplying infrastructure such as water, sewerage and electricity to the block.
Building projects will obviously add to the complexity of the endeavour, with additional considerations, such as the construction process, including drawing up building plans, engaging contractors, builders and site managers, and applying for building permits.
What is the process of subdividing?
Below we’ve outlined the process associated with a simple subdivision. In most states and territories, the development application goes through the local council with jurisdiction over the area your property falls in, however, this may differ in some areas.
1. Conduct due diligence
There’s no point buying a property for its subdivision potential if there’s no chance of that property ever being developed.
This is where due diligence comes in. Undertaking due diligence refers to investigating all of the relevant information relating to a property, including zoning, council rates, previous permits for development, current market activity, soil contamination reports, and any other outstanding issues which may affect the property’s value or its ability to be developed.
Research local council documents, such as minutes of council meetings and its Local Environmental Plan, to get an idea of how easy it is to apply for a subdivision permit, and whether any other projects have been approved recently. Find out the minimum lot size in the area, and make sure you wouldn’t be in breach of this in any potential subdivision plans.
Enquire with council to see how long an average development application takes to approve. This tends to vary between councils and applications, but you need to have a rough timeframe.
Investigate how easy it would be to connect additional services to the block – are the sewerage and water lines easy to access, or will you need to negotiate with neighbouring properties for access?
If you’re buying with subdivision in mind, you need to know that your time spent applying for subdivision, developing new infrastructure and potentially constructing a new property, will pay off. Consult recent sales data and current listings to gauge whether the demand will be there for a vacant block of land, or a new build.
This will help you to establish a feasibility study, an essential component of any subdivision plan. A feasibility study outlines the project aims or goals, a desirable timeframe associated with the project, and projected profits.
It is important to include financing details in this document, such as how much council development applications cost, the cost of employing a surveyor, stamp duty costs and legal fees.
It will help to establish whether the project is worth undertaking, and will provide a handy guide to stick to once your subdivision is underway.
You should also check that the property is not subject to any restrictions owing to the current owner’s financial situation, by referring to the certificate of title for the property.
2. Find out who you will need to engage to help you
Depending on the scale of your project, and whether you plan to build a new property or simply subdivide a block into new allotments; you will need to engage professionals to help you during the planning and development phase.
In the case of a simple subdivision, this may simply involve engaging a property lawyer, conveyancer and a surveyor, to assist with the block plans and development application.
If your plans are more extensive, such as including a new building in your development application, you will need to consider engaging the following people:
- Building designer/ architect
- Urban planner
It may also be a good idea to start having discussions with local real estate agents about how you will handle the sales and marketing process for your new block/property.
3. Draw up a plan
The experts you have engaged will help to develop a plan for the subdivision, including proposed new boundary lines and the provision of new services to the block. They will have knowledge of the local development guidelines, such as minimum block size and site orientation, and should create a plan which reflects these.
4. Meet with your local council’s planning office
Once you’ve decided on a block, made the purchase, and engaged your team of experts to commission a plan, book a preliminary meeting with the local council so that you can discuss the plan you’ve put together. This is referred to as a pre-lodgement meeting.
You will need the following documents to bring to the meeting:
- A copy of the certificate of title, a plan of the existing property including outbuildings and major geographical features
The following information is generally required for most land division applications:
- A plan showing the proposed new block, including size and boundaries, the location of any proposed new dwellings, and the location of carparks and driveways
This is the perfect opportunity to discuss your plans with the council’s urban planner or town planner. You can discuss whether your project plans line up with the council’s guidelines, and assess what needs to be modified in order to increase the chances of the plans being approved. Approach the meeting with an open mind and be open to suggestions – being antagonistic will not help get your plans through council.
5. Lodge the development proposal
Once you’ve identified any issues with your proposal, and modified your plans to reflect this in consultation with your team of professionals, you can lodge your application with council.
6. Track the progress of your application
Once your application is lodged, you should keep track of it with council by regularly getting in contact with the relevant council staff member and enquiring as to its progress. Stay calm and collected during this process, and ask if there’s any assistance you can provide to speed up the process. Good councils will try and be as efficient as possible when processing applications, but it pays to keep track of your application just in case something goes awry in the administration process.
7. Act on permit
Once you’ve received the go ahead from council, you can get underway with any works required as part of the subdivision process, such as the provision of electricity and water to the proposed new block. If you’re constructing a new dwelling on the block, you can commence the construction process.
8. Get final approval/confirmation of compliance/register title
When these works have been completed, the block will need to be inspected to confirm it has complied with council’s plans. A new building will need to undergo the relevant building checks applicable to each state and territory.
If these inspections check out, the new block can then officially be registered as a new title with the relevant department in that state/territory.
Does subdivision stack up as an investment strategy?
If you conduct your due diligence correctly, and invest in the right kind of block in the right market, subdivision can pay off handsomely. As witnessed from the above it does, however, require a great deal of planning, the investment of time and energy, and a willingness to consult with experts.
Sticking to your feasibility study and making sure you don’t go overtime is critical to the amount of profit you will be able to attain from a subdivision, as is avoiding overcapitalisation, particularly if you are developing a new dwelling on the subdivided land.
It is also important to remember that you may be liable for capital gains tax on any subdivided block of land which you choose to sell.