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In order to get the best return possible, investors may consider buying land and building a property. If they’re looking in Sydney, how much will that cost them?
According to the latest Herron Todd White Month in Review report, investors looking to build up their own properties will be focused mainly on the south-west and north-west fringes of the greater Sydney area, as well as Western Sydney and the upcoming Aerotropolis.
The intricacies of these areas, however, do differ:
Looking at Box Hill, $350,000 will get investors 250 square metres of land, while $550,000 will get 490 square metres, but the report notes there has been a softening of land values recently, generating prices below market value.
Resales of vacant land in newer estates are being done so quickly and are typically being done so at a loss. As an example, the report notes that a 305-square-metre parcel selling for $380,000 after going for $399,000 in 2016, and a 375-square-metre parcel selling for $402,000 in 2019 after going for $422,000 in 2015.
Meanwhile, the south of Western Sydney is expecting to see 200,000 new properties in the next 10 years, which includes suburbs like Oran Park, Gregory Hills, Gledswood Hills, Leppington and Austral, as well as the Badgerys Creek Airport and the Aerotropolis.
Looking at Leppington, land is also being sold below the purchase price. Examples include a 375-square-metre parcel selling for $382,000 in January 2019, just narrowly missing out on its original $385,000 from 2016, and a 451-square-metre parcel selling for $425,000 in 2019 after originally going for $455,000 in 2017.
According to the report, dwelling construction rates have increased in the last few years, but have weakened recently due to builders competing with each other.
“We are also seeing competitive initial building rates, but it appears a lot of the profit is being made, with variations and additional inclusions driving up the end contract price,” the report noted.
“We have also seen rebates, cash incentives and other offers for individual land sales from developers, in building contracts from builders and also in the sale of house and land packages.”
A trend identified by the valuation firm was that of “new car syndrome”, where the value of property and land is less than the purchase price of the land and cost to construct.
“This is being driven by the sale prices achieved of recently constructed dwellings offered to the market,” the report stated.
“When valuers are putting together their assessment, it’s just not simply a ‘land plus build equals value situation’, as in many cases the recent sales evidence simply cannot support it.
“Recently built dwellings on the market have to compete with not only the surrounding dwellings for sale but the available vacant land as well, as new home buyers have the option to buy existing stock or build their own new dwelling.”
Land in Greenhills Beach, north of Cronulla, saw land selling from $1.2 million up to $3 million for beachfront areas during 2015 and 2016, sized between 600 and 800 square metres.
Since the release of the land to today, properties have been built priced between $500,000 and $2 million and over, with land prices rising and then declining.
“We are therefore currently seeing the value of most newly finished properties being in line with the cost of the land and build,” the report noted.
“The exception to this is at the top-end build costs where the market is untested. The highest completed property sale in the suburb was 11 Peregrine Drive for $2.96 million in December 2018.”
Barden Ridge is expected to see 123 new lots open up in late 2019, sized between 550 and 900 square metres, with prices starting from $759,000.
Inner-west Sydney rarely sees new land, along with the majority of inner and middle Sydney, according to the report, which usually means older buildings need to first be demolished.
The report identified Strathfield as an example of older buildings being knocked down for new ones, with land values declining over the last year, but also noted that the values are “quite volatile”.
Properties located at 66 and 68 Arthur Street best represent the value decline, with these properties selling for $2.175 million and $1.765 million, respectively, both in 2018.
The former, 66 Arthur Street, has 765 square metres of land has been demolished and is currently under construction; while the latter, 68 Arthur Street, has 740 square metres of land and is under construction, which is expected to cost between $2.22 million and $2.59 million at least.
Like inner Sydney, northern Sydney also has a new-land problem, with older buildings being knocked down to make way for newer ones.
Warriewood is seeing subdivisions taking place of about 20 to 40 lots, with parcels sized between 250 and 500 square metres going for between $625,000 and $1.5 million.
Established areas and older properties like in Manly Vale are considered to be popular, according to the report.
The Northern Beaches are also seeing a range of building options and designs, with Hamptons-style housing proving to be a recent trend, as well as private builders creating custom-designed properties, which range from $1,500 to $3,000 per square metre, the report stated.