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It may take Perth real estate agents 6-12 months to fully understand the new R-code changes that took effect on 2 August, but for now, they appear to represent a tremendous opportunity for profit. The biggest change and the one that affects the largest number of investment properties in Perth is the R-20 zoning change.
Blogger: Jarrad Mahon, Investors Edge Real Estate
R-codes, or Residential Design Codes, are Western Australia's framework for controlling residential development by controlling population density in residential neighbourhoods. The amendment statement includes goals such as addressing emerging design trends, improving clarity, promoting sustainability, and the highlighting of assessment pathways. The endgame here is to facilitate better residential design outcomes.
While it might be hard for many to make any sense out of the language, WA's R-Codes are the result of cooperation between the community, industry and local government; and WA's system is afforded a general level of respect by other states.
Basically, R-Codes help neighbourhoods sustain a preferred standard of living by controlling population density. They ensure that your residential neighbourhood won't triple in population density over the length of your residence there due to unchecked construction and cramming too many people into too small of a space.
The R-Code Changes
This year's changes provide a great opportunity for savvy investors. Between 2002 and the 1st of August in 2013, the requirements were more strict, keeping many lots from being subdivided. Residents in R-20 areas were required to have a minimum lot area of 440 sqm per dwelling and an average of 500 sqm. In other words, one lot could be as small as 440 sqm, but the total for a two-lot strata subdivision had to be 1,000 sqm, bringing the average of the two lots to 500 sqm. Residents are allowed to apply for a 5 per cent variation, which would bring the total area needed down to 950 sqm.
Under the new R20 zoning, the minimum lot area has been decreased to 350 sqm, with an average lot area of 450 sqm. That means that the minimum lot area for subdivision is 900 sqm, or 2 X 450. When the 5 per cent variation is taken into consideration, it is now possible to subdivide a lot that is as small as 855 sqm.
You might ask, 'Where is the opportunity here?' or 'How can I make money off of these changes?' It depends on knowing the exact area of a property and finding properties that are large enough to be subdivided but are being sold based on their previous status: too small to subdivide.
Any property that is between 900 sqm and 1,000 sqm that is being sold for the price of a property that isn't eligible to be subdivided is underpriced. In addition, some properties that are as low as 855 sqm could be underpriced. A savvy investor can make between $80,000 and $100,000 just by buying a duplex sized property that is priced as ineligible for subdivision--when it is now eligible.
For a property inworth $400,000, investors usually pay around $80,000 extra for the land if it can be subdivided into two. In other words, if you find a property that falls between the previous limits and the new ones, you can make an extra $80,000 profit on your next subdivision.
Another Important Change
The other change that may affect a lot of residents is that 'Granny Flats' have unofficially become 'Fonzie Flats,' due to a relaxation of the ancillary dwelling provisions. Previously, ancillary dwellings had to be inhabited by relatives. WA has relaxed the code, allowing non-relatives to move into ancillary dwellings.
While this won't have nearly the effect that the overall area requirements do, it will allow families and property investors with ancillary dwellings to turn them into profit centres. This will enhance profits on many investment properties.
Navigating the New R-Codes
As we said earlier, it could take as long as a year for the full effects of the change in R-codes to appear. We believe we have done a great job of anticipating changes, but there will be a lot of investors and agents testing the new limits.
The effects on the market are difficult to predict as of now. We project more rentals on the market, but can't predict the effect on rents. We do, however, know that property investors need to be diligent in monitoring the situation. More than ever, you must protect your investment “now.”
Call 1300 472 427 today for more information.
About Jarrad Mahon
Jarrad thrives on helping hundreds of investors every year formulate a clear plan to get the best returns from their Perth property. This requires a carefully thought out and innovative approach to understand your situation and help you to make the right move at the right time.
His renowned personalised "Property Success Plan" takes you step by step through how to make thousands of extra dollars and avoid the costly mistakes that Jarrad has learnt the hard way by investing himself all around Australia.
Over the last five years he has used his engineering background to build and refine a unique property management, sales & investing process that is sure to impress while getting you real results.
A sales and marketing expert, Jarrad combines the latest technology and cutting edge sales strategies to sell homes across the whole of Perth metro area.