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With housing density being pushed by the government, redeveloping established houses is a great investment tactic – but there are a few important things to consider.
Blogger: Shane Kempton, CEO, Professionals Real Estate Group
In recent years, there has been a growing push by governments to encourage more housing density in established areas of Australian capital cities.
For example, Plan Melbourne was launched last year with short-, medium- and long-term objectives to achieve the delivery of 1.57 million new homes by 2051, of which 1.04 million will be higher density and the remaining 530,000 will be traditional stand-alone houses.
To achieve this outcome, Plan Melbourne has a target of identifying underused land surrounding train stations, such as North Richmond, that can be redeveloped into new residential/commercial areas.
Another example is inwhere the Directions 2031 and Beyond planning strategy has set a target of creating 47 per cent extra housing in Perth through urban infill.
This trend of encouraging higher-density living in major capital cities has created opportunities for astute investors, especially if they can buy properties before they are rezoned.
If you are considering buying an older-style home for redevelopment purposes, then you need to undertake careful due diligence.
How many home units you can build on your property will be determined by the zoning of the local council and the state government.
You should check with the council as well as the relevant state government planning department on the exact zoning status of the block you own or may be planning to purchase.
In addition, you should also check the special regulations in terms of minimum frontage, boundary and rear setback areas for the unit development. It is also important to ask about any future changes that might impact on the zoning, such as the widening of entrance roads.
Another important issue to consider is the additional costs of building a strata-style development compared to the standard family home. For example, water, phone and other service connection fees, headworks charges together with other costs such as fencing can add several thousand dollars to the cost of the unit development.
Your budget should also include a generous allowance for site works, particularly if the block is not level.
The type of home units you build will also impact on the resale value of the property. More homebuyers are seeking properties with two bathrooms and a garage as well as security, and these are features that should be included in a higher-density unit development to maximise the selling price.
A good tip is to speak to property investors who have recently undertaken a subdivision in the local area you live or plan to buy. Generally, most people are happy to discuss their personal experiences and highlight some of the hidden traps they have encountered.