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There can often be some misunderstanding around a fixed-price contract.  If you don’t know a builder, then there can also be a little mistrust as you look over the tender. Am I being overcharged?  Is everything included?  Will there be many variations?

Today I opened an email that made me smile and really feel grateful for such a wonderful builder we are working with on our development projects.

The email came from the office of my builder. It related to a three-villa project under construction. It had two variations attached to it; one for the site preparation and the other for slab piering.  I’d been overseeing the works with the site manager so I was expecting the variations but weren’t sure on the exact cost they’d come in at.

“Variations are changes to the original contracted work, which involve either an addition or reduction in the scope or value of work,” so the <a href="https://consumer.masterbuilders.asn.au/the-building-process/contracts-and-variations/variations">Master Builders Assoc describes</a>.

So you’ll always find some items marked as provisional in your builder’s contract, because you can’t always plan the entire “scope or value of work” required when developing.

In this builder’s contract this clause was clearly included:  “Provisional sum is the estimate cost of labour and materials; it includes an amount for the builder’s margin. If the cost is more than the allowance, the difference including builder’s margin will be added to the contract price. “

Back to our three-villa project variations.  The first one covering the site preparation was for tree removal.  The builder’s tender covered vegetation clearing but from the time Property Bloom located the site, ran our analysis, designed the project, lodged the development approval and construction certificate and the client had her construction loan finalised and we could start to build, the vegetation had grown to a rather large tree.  We did get a quote from a tree lopper to clear it, but we decided that it would be cheaper for the builder’s excavator to push it over and clear it as part of the site preparation. So we did expect a little increase to this provisional cost but wouldn’t know until the excavator submitted his invoice to the builder. It ended up being a little over $1,000 for this work.

The other variation was for under slab piering.  Once work was completed, we knew that we hadn’t needed to use the entire provisional allowance in the builder’s tender.  When on site with the concreter, I could see that the depths he was drilling to were not as deep as expected and so there were less lineal meters of piering required.  For this work our client was receiving a credit as the provisional allowance was over-estimated.

I needed to let my client know that there had been some variation to the build cost.  After all, she had signed a fixed-price contract a few weeks earlier, but I had made a point to explain the items marked provisional in her contract.  Usually provisional items are:

<ul>
<li>Disposal of stormwater – even with an engineer’s plan, this may vary during construction</li>
	<li>Retaining walls – the square meters of retaining often can’t be totally confirmed until the site is cut</li>
	<li>Piering to under the slab – dependant on how deep they may need to drill to hit solid support</li>
	<li>Site preparation – excavation – cut and fill.  There can be more fill required to bring in or take away</li>
</ul>
The conversation I had with my client was easy. She was coming out in front with the credit on the piering more than covering the variation on the site clearing.  This is the kind of outcome we strive for, but it doesn’t always work that way.

In property developing or home building, there can often be a degree of disappointment once under construction as issues arise.  Mostly this comes down to the developer or home owner’s expectation that the costs won’t change.

The more developments or home builds you manage, the more issues you become aware of. But if you can go into it knowing there is a degree of risk that you must take, then you won’t be disappointed if an issue does come up.

No one can really know what will happen once you start work, but as project managers, it’s our job to manage the issues in the most effective way so that we minimise costs and the valuable time in may take to sort out the issue.  And when it goes the other way and a credit is issued, then that’s a wonderful feeling.

<h2>Recently listed properties:</h2>

[smartcode_project:default project_id=3490]

[smartcode_project:default project_id=3783]

[smartcode_project:default project_id=3565]
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jochivers-wq5Bp59R5a

Why the cost can change, even in a fixed-price building contract

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This week I went to an eye specialist. I’ve decided it was time to consider laser surgery as I’m short-sighted and need glasses for driving and now I also need glasses to read (yes, I know, a sign of ageing!).  I spent about an hour peering into various machines while my eyes were scanned, measured and flashed at.  At one point I thought I was in a disco with strobe lighting, but unfortunately no John Travolta materialised.

Afterwards the specialist reviewed the enlarged computer images taken of my eyes; I asked him if the measurements were showing the contours of my eyes. He looked at me and said yes and was a little curious to know how I knew this, apparently not many people ask.  I told him I was a property developer and it reminded me of the contour survey that we need before we start developing our sites (pardon the pun... get it sight / site?!).

So eyes and land both need surveying before any work can be done. It makes sense, really.  The surgeon needs detail such as the height of my cornea, and the builder needs to know the fall of the land.

[smartcode_project:default project_id=27783]

This made me reflect on how important it is to understand the contours of land. I find that many of our clients do not understand what a contour survey is and why it’s necessary, so I thought I’d focus on this today.

In the property world, a contour is an outline of a mass of land. A contour or detailed survey is done by a surveyor and required before you can start on the design of your buildings. Contour lines will be marked on the survey.  Below are some tips* that can help explain the marking you’ll see:

<ul>
<li>All points on a contour line are of the same elevation.</li>
	<li>No two contour lines can meet or cross each other except in the rare case of an overhanging vertical cliff or wall</li>
	<li>Closely spaced contour lines indicate steep slope</li>
	<li>Widely spaced contour lines indicate gentle slope</li>
	<li>Equally spaced contour lines indicate uniform slope</li>
	<li>Closed contour lines with higher elevation towards the centre indicate hills</li>
	<li>Closed contour lines with reducing levels towards the centre indicate pond or other depression.</li>
	<li>All contour lines must close either within the map boundary or outside.</li>
</ul>
*Reference: engineeringcivil.com and Ramasesh Iyer 

Once the architect or draftsperson has a contour survey then they can begin work on the plans, and the survey will indicate how much site works may be required.  For example, a sloping site will need to be levelled if you are using a slab construction and therefore the approximate height of retaining walls and volume of spoil to be removed need to be calculated.  These costs need to be allowed for by the builder and he depends on the measurements on the contour survey for this data.

[smartcode_project:default project_id=7633]

<hr class="system-pagebreak">
 

Click to enlarge

<a href="/images/stories/2012/10/survey.gif" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/2012/10/surveythumb.gif"></a>

On this survey above, if you look at the first number on the top right-hand side of the survey it reads 1.06.0 then the next number down reads 105.5, this tells us there is a half metre fall from the rear boundary to this contour line. The surveyor has used 500mm intervals to the next contour line.  The last measurement at the front boundary reads 99.0.  So this tells me the site has about a seven-metre fall, so it’s a steep site. The interesting thing showing on this survey is the area in the middle of the survey where there is a break in contour lines. The surveyor has marked the survey with broken lines to indicate a change in grade. Why would this be?

I can tell you why. There was an old house built right in the middle but it had been demolished, so this part of the land had been levelled. This site, while steep, was purchased for a pier, bearers and joist style project, and the view from the top of the site is spectacular out over the valley. So it’s certainly not an ideal development site, but we made it work nicely as a dual-occupancy project.

[smartcode_project:default project_id=8082]

Accuracy of a survey is extremely important. On one site we found the surveyor (not mine, as this was a development application-approved site purchased) had taken a measurement from one metre in from the rear boundary instead of right on the rear boundary. This was not picked up until after site preparations started and the site was cut. As the site sloped from rear to front, the retaining required on this rear boundary was much more than the builder had allowed for based on the plans. So it is important if you are buying DA-approved sites, to have your own surveyor double-check the plans and proposed levels that are based on the original contour survey.

I’ll keep you updated on whether I have my sight fixed but in the meantime, set your sights on the contour survey before you start developing property.

Jo Chivers is director of <a href="https://www.propertybloom.com.au/">Property Bloom</a>, which manages property development.
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What you need to know about contours on a property development site

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Property development can be daunting so I’ve put together some FAQs to help address some of the important questions that will arise as you start your development.

This has been broken down to a three-part series:

<ol>
<li><a href="https://www.propertyobserver.com.au/https://www.propertyobserver.com.au/developments/how-to-get-started-in-property-development-jo-chivers/2012061355113" target="_blank">Getting started </a></li>
	<li><a href="https://www.propertyobserver.com.au/https://www.propertyobserver.com.au/land/mastering-the-design-planning-and-approval-stage-of-a-property-development-jo-chivers/2012062055209" target="_blank">Design, planning and approvals (as seen last Thursday)</a></li>
	<li>Construction Time</li>
</ol>
 

2. Construction Time 

“Each of us is carving a stone, erecting a column, or cutting a piece of stained glass in the construction of something much bigger than ourselves.” Adrienne Clarkson

Construction time is the best part of developing property. Seeing that first sod turned and standing back as the excavator starts to form up your site is truly satisfying.  The groundbreaking, also known as cutting the site, marks a massive milestone in your development project. 

[smartcode_project:default project_id=22803]

There is so much work that needs to be completed before getting to this stage.  You’ve found a site, negotiated to purchase it, researched with the council and other authorities, run your feasibility, got your designs done, had your building quotes completed, prepared documentation and lodged your development application, perhaps battled with the council.  Then you’ve obtained your consent and engineering and construction certificate (CC) plans and the CC consent.  Once fully approved there are still more hoops to jump through and it’s off to your lender to get your finance organised and finally unconditional approval. 

The development process is like an iceberg.  Most of the work required in project managing your property development is done before you cut the site.  It’s all hidden below the surface.

[smartcode_project:default project_id=32227]

So by the time your project comes out of the ground, you have done most of the work.   Inexperienced developers won’t understand this, but I know the sheer volume of hours required to get a project to the construction phase is phenomenal. 

When can I start construction? 

As soon as you have your DA – development application and CC – construction certificate –  consents and you have obtained an unconditional finance approval, your builder can start construction. 

What is the first process?

[smartcode_project:default project_id=94611]

Site clearing is required before you can start preparing your slab or footings. So ensure your builder has included vegetation and tree removal.  If you are demolishing an old house or building then ensure this is done before your builder is ready to start, as you do not want to hold up the process. 

How should I manage my builder? 

It’s important to have open communication with your builder from the start. Explain to him that you want to be involved and depending on your experience and time available let him know if you will be project managing the development or engaging a project manager. 

As project managers, we are in constant communication with our builder’s site or construction managers. 

[smartcode_project:default project_id=29921]

What does a project manager do and do I need one? 

A project manager can help you to fast track your development. A good project manager will: 

<ul>
<li>Save you money</li>
	<li>Save you time</li>
	<li>Minimize your risk</li>
	<li>Teach you how to manage your development</li>
	<li>Give you access to sites not on open market</li>
	<li>Professionally manage, record and report the process for you</li>
	<li>Share their local knowledge, experience, contacts, suppliers</li>
	<li>Allow you to keep your day job</li>
	<li>You can learn the process then perhaps feel more confident to manage our next project. </li>
</ul>
You could use a project manager if you are inexperienced or time poor or both. It’s a good idea to use a project manager if you want to learn the process of developing, you can have your hand held through the development and will be amazed by what you will learn by being guided through the process. 

[smartcode_project:default project_id=22699]

Main steps in the construction phase include (for typical slab &amp; brick construction):

<ol>
<li>
Site preparation This involves clearing of the site and pegging out of the site by the surveyor. Sometimes retaining walls will also be built at this stage if required.</li>
	<li>
Slab The plumber will need to lay plumbing that will be located beneath the slab of the development. This needs to be done before the slab can be formed up.  The slab piering is then completed as per the engineer’s specifications and plans and then the slab can be poured.  It’s very exciting to see the slabs go down.</li>
	<li>
Frames and roof trusses The frames are generally prepared before being delivered to site and can be erected very quickly with a day or so. It’s great to walk around the site once the frames are up and get a feel for each room.</li>
	<li>
Roof tiling of metal roofing Some builders prefer to complete the roof before starting the brickwork and other builders work the other way around. I’ve found predominately builders want to get the roof on as quickly as possible to protect the frames.</li>
	<li>
Brick work This stage really gives the development true structure, and you can feel the development making good progress when you see the brickwork completed.</li>
	<li>
Rough ins This involves the electrical and plumbing wiring and pipes to be installed before the internal linings to the frames.</li>
	<li>
Internal linings After the rough in is complete, the insulation will be installed into the wall and ceilings and then the plaster will start on lining the walls and ceilings. You really get a good sense of space within the dwellings at this stage.</li>
	<li>
Waterproofing and tiling The wet areas will be water-proofed in preparation for the tilers to start work, generally after or even during the timber mould out.</li>
	<li>
Timber mould out This stage involves the carpenters installing the skirting boards, architraves, door jams and doors and kitchens.</li>
	<li>
Lock up is when all external doors including garage doors are on.</li>
	<li>
P.C.  fit out. P.C. is a term for a prime cost item and includes tapware, bath, mirror, vanities and other accessories, which are installed at this stage.</li>
	<li>
Practical completion. This is the point in time when an inspection is conducted when builder is almost finished. You will walk through the development with the site manager and point out any items that still need attention. By this time it should only be touch ups and minor items requiring installation.</li>
	<li>
Handover This is when you are happy the construction has been completed to your satisfaction and to the plans and after paying the builder’s final invoice, keys will be handed over to you. </li>
</ol>
When can I lease out or sell my development?

Once handover is completed and you have received the occupation certificates from the council or your private certifier, you can lease the dwellings out.  If you are building more than one dwelling then you may also be subdividing, so you cannot sell the individual dwellings before you have subdivision approval. They may be sold subject to approval or registration of the subdivision. 

[smartcode_project:default project_id=7633]

Seeing your development emerge from the dust and dirt and slowly take shape until it resembles exactly what you have planned is one of the most exciting and satisfying moments you could experience as a property developer.

As I see Property Bloom projects come to completion, it really makes me feel like we’ve achieved an amazing thing for our clients; manufactured equity, provided education, created strong yields and most of all helped them fast-track their portfolios and plan for their future.  It is such a wonderful feeling to step back and look at what’s been created and understand the needs that have been met for our clients and for the local communities we develop in. Seeing the dwellings tenanted or sold and lived in by families that will get to enjoy the fruits of your labour is what it’s all about.

Jo Chivers is director of <a href="https://www.propertybloom.com.au/" target="_blank" title="Property Bloom">Property Bloom</a>, which manages property development.
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The 13 steps in the construction phase of building a new home

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Last week I was assisting a client with her dual occupancy construction finance. We have Development Application (DA) and Construction Certificate (CC) consents and the builder has issued their Building Contract. The bank now has all the documentation required to unconditionally approve her construction finance.
They had conditionally approved her loan a few weeks earlier after verifying income and assessing serviceability and all the other stuff they do after you sign a mountain of loan docs. The next step was for the bank to value the two dwellings and then they could finalise the construction loan.
Her bank did an "As if Complete" valuation. This is also known as a Tentative on Completion valuation. It's when the bank value the project before it's constructed but based on how they think it will be completed.  lf it's more than one dwelling - a dual occupancy or multi unit project - they look for a value of the property '"in one line". This means not subdivided. If the bank had to sell the dwellings all on the original title, what would they get for them?
The number one, massive, biggest, fattest, most frustrating issue with this type of valuation  is that there are generally NO sales references. Who in their right mind would sell in one line if given the choice of making far more profit by subdividing?
When there are no sales references in one line, it is up to the valuer to determine how they discount the end values if the dwellings were on their own title.  Valuers must take legal responsibility for their opinion. The valuer needs to cover themselves in the instance that the bank may need to fire sell the properties together on one title of land.
The process of subdivision after building works are complete, whilst not complicated, can take a number of months to get to the registration stage. Yet the builder's final payment is due on completion of construction.
The Australian Property Institute publish a very interesting document on valuation standards. It's 395 pages long. That's how complicated the valuation process can be.  It covers valuations for different purposes such as market, mortgage and loan security, rating and taxing, for compulsory acquisitions, for assessing rental value, for property plant and material, for insurance purposes and to use in financial reports. 
In this instance due to no direct sales the valuer will possibly use a gross realisation of the dwellings assuming they are subdivided and on separate titles and then deduct a profit and risk factor, holding and selling costs to arrive at their valuation figure. 
They may also take into consideration a capitalisation of the gross income and use an acceptable market capitalisation rate or cap rate. 
In my opinion, without actual sales references of properties sold in one line, the valuer will be super conservative in their calculations and hence, a low On Completion valuation may be received. This is one of the perils of construction finance and so a buffer of cash should be put aside in case the construction loan requires supplementing. 
Applying for and then finally receiving approval of, construction finance can be one of the most lengthy phases of a development project. It can take longer than obtaining the DA consent and in some cases, has taken longer than the construction phase itself!  So be careful to allow, not only enough extra funds, but also time for your construction finance.
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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The complicated process of valuation: Jo Chivers

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Over the years I've refined the fittings and fixtures that we include in our villas. When we first started off many years ago, we'd just run with the basic builder's range.
When I look back on the fittings in the basic builder's range I'm horrified. You see, the basic range is usually selected by the builder. The builder is very good at building homes but may not have a very strong sense of style. Large building companies will usually employ interior designers to make selections but if you are using a smaller building company, double check their fittings and fixtures.
I remember on one build, after the timber mould out stage, (when the skirting boards, architraves and internal doors are hung) I arrived on site for my inspection. Walking into the villas I saw something bright and shiny in the corner of my eye. I turned to see gold hinges on the door. We'd chosen matt chrome door handles and I asked the builder about these brass hinges. His reply was "they are the best quality hinges you can get, Jo".  It didn't cross his mind that they didn't match in with the door handles. 
Some small changes to items like tapware can make a massive difference and not even cost any more. It's all in the style of tap. A builder's range tap may be functional but not necessary pretty. If you ask your builder who his plumbing supplier is, a quick visit to their showroom and I'm sure you'd find a nicer looking tap for the same price or a higher end range that may be on sale.
The vanity is the focal point of a bathroom so look at what is available in the builder's range. Often you can add a coloured or timber look base to the vanity for no extra cost and tie in the colour with your tile scheme. A wall of feature tiles can really add impact, but make sure it's not overkill if it's a small bathroom.
Lighting is another area that adds to the style of a room.  We try to avoid boring oyster lights. It's amazing how far the humble oyster light has come. Ask the electrician where he gets his lights and again take a look at what's available. Energy saving downlights give good light and are not that expensive and if you add two pendant lights over the kitchen then you will immediately give the kitchen a higher end feel. Add bulkheads above the overhead cupboards for a clean look. 
Ceiling fan with lights to the bedrooms are usually well received by tenants and buyers and not that much more.
Don't forget the front door lighting, by adding a couple of stylish lights you're creating a good first impression.
Look at a slight upgrade to the kitchen rangehood as this adds more dimension to your kitchen.
I like to use a gloss floor tile in the living areas as it reflects light around the room and has a more luxurious feel.
Finally, give the front façade something that will increase its appeal. Aluminium timber look garage doors are only slightly more than standard colours. Upgrade the front door handle to an oversized handle and combine it with a nice metal plate with the street number  to give a glamorous entrance.
Jo Chivers is Chief Executive Officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Small upgrades that give big impact: Jo Chivers 

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With each property development we manage, we'll fine tune the process so that on the next one, we'll do something a little differently to improve the results. 
After completing over 80 developments, our process has become pretty refined. But there is always something we can improve on. 
Sometimes they are just small tweaks that can make a massive difference. This particular example I'll share with you shaved literally a month off the planning process.
At Property Bloom we work across a number of different councils and each council has their own way of looking at and processing a Development Application (DA). It can be easy to make assumptions based on past experience. 
So when we started working in a new location that fell under a council we'd not yet worked with, we assumed they'd review our plans in the same fashion as the other councils. The first few DAs (all assigned to different town planners) were processed within about 7-8 weeks on average. This is a lot longer than we liked but still not as bad as another council's processing times. It fell somewhere in the middle of our best and worst processing times. 
The time your DA is in council is dead time, there is not too much you can do whilst you wait for the consent in case changes need to be made. We tend to use this period to choose material and colours.
Even after working with some councils for ten years, it will come down to the individual town planner who is assessing your DA and what they like to see marked on your plans. If they request 'more Information' then your DA is put on hold until they receive a response.  
This particular DA was assigned to a planner we'd not yet worked with at this council. We received a letter requesting more information on off street parking locations. The plans detailed a single garage for each villa. The requirements are to provide two parking spaces. Obviously one is in the garage - but here's where our assumption kicked in -  we thought the planner could 'see' that the second space was on the driveway as a stacked or tandem parking space.  
We quickly marked this on the plan and immediately sent it to the planner, and within three days we had the DA Consent on our desk. This set a record of processing time with this council - four weeks, down from eight weeks. 
It goes without saying that this was added to our list of what to include on the plans and we made a mental note never to assume. We are now a month ahead of schedule and our client is happy to save time and holding costs.
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Drop assumptions and save time on your planning process: Jo Chivers

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So you’ve decided it’s time to embark on a property development. Great stuff – you’ve made the first of many, many, many decisions for your exciting development journey.
So here are some more decisions to make.  The very first question you’ll need to answer is, ‘what is your development strategy?’
It’s a good question that only you can answer but it also leads straight into a whole list of more crucial questions:
1  Budget – cash available and how much can you finance?
2  Risk profile – do you have a low or high tolerance for risk?
3  Time – how much time do you have available to run your development?
4  Knowledge – do you understand the different development processes?
5  Skills – project management, negotiation, communication, patience 
Once you have answers to the above, you can then work out your development strategy.
Your strategy may include:
<ul>
<li>Land Subdivision</li>
<li>Renovate and add value to an existing dwelling</li>
<li>Dual occupancy or low density development</li>
<li>Renovate an existing dwelling and also build new dwellings on the land</li>
<li>Medium density development</li>
</ul>
The development strategies above will all have a different impact on your crucial questions.
Let’s start with Budget. If you are on a low budget then you may choose a house renovation. For this strategy you’ll need to have lots of question 3 as house renovations can be very time consuming.
If your budget is higher, then you may choose a low or medium density project. This choice of strategy will mean you’ll need a high tolerance for number 2 and lots of number 5.
Whichever development strategy you choose; you will need some help. Now it’s time to put together your team.
Who do I need on my Development Team?
<ul>
<li>Property Specialist Accountant &amp; Solicitor</li>
<li>Finance Broker or personal banker</li>
<li>Surveyor</li>
<li>Architect/draftsperson</li>
<li>Builder and other tradesmen; plumber, electrician, carpenter, landscaper</li>
<li>Consultants such as an engineer and private certifier</li>
<li>Quantity Surveyor</li>
</ul>
And if you are short on crucial question number 5:
<ul>
<li>Development Project Manager who will guide you through the entire process</li>
</ul>
Congratulations, you have now answered the crucial questions, decided on a development strategy and built your development team. The next step is to find your development site; you’ll find this raises a whole new series of questions. Have fun!
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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5 crucial questions to answer before starting your development: Jo Chivers

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Christmas always puts a deadline on things. For Property Bloom this year it's completing four development projects before the big man with the white beard arrives.
Of course our builder and all their tradies are under the pump at this time of year and our job as project managers really comes into play.
Our goal is not only to have the dwellings completed with Occupation Certificates (OCs) issued, but also tenanted before Christmas. And I've found a way to achieve this.
It's called supporting your site manager.
Rather than micro manage our site managers which just drives people crazy, we try to help them by giving them a hand. They feel supported and at the end of the day, we are all on the same team striving for the same result: Happy clients.
Here's an example. I'm doing two Practical Completion (PC) inspections this week and I have a tool I'm going to take along that should help. It's a bottle of Spray and Wipe.
Because we are pushing the process, we'll often get asked to move the PC date so they can be completely ready. But I don't want to give our builder another few days. Because right now, we literally don't have them.
We want tenants settled in before Christmas, we need the properties to look their best because on the same day we do our PC inspection, our appointed property manager will be taking photos and uploading the properties onto the Internet. This way we can advertise for tenants during the PC and Handover period.
The Handover period is the time after PC when the builder has seven days to complete any outstanding items we've picked up and before the bank pays the builder's final drawdown. Once the builder receives their payment, they release the keys to the owner and the dwellings come off construction key. That is literally the Handover date and of course a tenant can't move in before Handover.
Once asked to pay the final invoice, the bank typically take about a week, sometimes longer to send their valuer to check construction has been completed then transfer the money to the builder.  Before they release the final payment, they will have conditions such as receiving a copy of the OCs, and a copy of a building insurance policy in the name of the owners. 
This week or two is valuable and we use it to show potential tenants and hold open homes. We can do this because we have a great relationship with out builder and they will allow access BEFORE Handover. That's pretty unusual for a builder. But it means tenants are lined up as keys are handed over, which results in zero vacancy time for our clients.
So back to the PC inspection. My theory is that we set a date for PC and we do all we can to get the project to that stage. By having a deadline, more action is taken. I've found that there ends up being only minor items to attend to if any at all, because the site manager has done all he could to meet the deadline.
Short of bringing a pair of white gloves, I am fussy at these inspections. But some things just need a bit of elbow grease. So the bottle of Spray and Wipe comes out and we can clean the spots as we go through the property. It's so much easier than adding it to a list and having to wait for cleaners to come back. Of course I do draw the line at mopping floors, but small marks can easily be removed along with the fine layer of dust that always seems to settle on the kitchen benches a day after the construction clean is done.
I'm looking forward to Christmas this year but there's still a bit of work to be finished before the champagne is poured and prawns are peeled. 
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Countdown to construction completion: Jo Chivers

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I was interviewed for a great story in one of the property magazines, the article was called Keep and Reap and it examines the pros and cons of holding onto property after you finish developing it.
One of the biggest things to consider before you start a development is entry and particularly exit costs - if you are developing to sell.
Around the same time I received a call I had from a guy called Dave.  He said ‘Hi Jo, can you help me with a dual occupancy project’.  To that I replied...’sure Dave, we’d love to. Tell me a bit about your strategy and what you are hoping to achieve from a property development’. 
'Well, my wife and I want to turn over a few developments, you know...complete one, sell and then use the profits to go again. Our aim is to use the proceeds to pay down the mortgage on our principal place of residence and keep investing’.
Dave certainly has a very good plan. As property development project managers, we are not qualified to give accounting or financial advice, but what I do like to check with anyone making this kind of enquiry is that they understand what selling or exit costs are involved.
Dave said he understood there’ll be agent’s selling commission and marketing costs to sell the new villas, we might have to pay some Capital Gains Tax and that’s it I think’. He said.   
My reply...’Are you sure Dave?’
If you take a look at the exit costs, then you may think twice about selling on completion, especially if it’s a small development like a dual occupancy.
In the Hunter Region of NSW where we manage developments for our clients, we can typically create around one hundred thousand dollars in equity on a dual occ project within twelve months. This sounds like a lot of equity to create and it is...if you are holding the properties you’ve built.
By holding on completion you'll not only get the benefits of depreciation and higher than average rental returns (everyone loves to rent a brand new property) but some clients choose to refinance and by doing this they can access some of the equity that’s been created through the development process.
But, if you are looking to sell on completion, then there is a whole list of costs you need to consider.
The big one is GST and as I explain this to Dave, I highly recommend he checks this out closely with his accountant.  GST is applicable when you sell new property, so Dave would need to ensure he pays 10% of his selling cost to the government. If he is not registered for GST, he can't claim back the GST he's paid over the life of the development so he's essentially losing 10% on his sales. However, if he holds the properties for five years, they are no longer deemed new and no GST is applicable.
Finance costs are another cost to consider. Dave needs to check with his lender what fees and charges may be applicable when he sells, these may include a prepayment fee, settlement fee, early exit fee or Government mortgage discharge fees.
There will be legal fees for your solicitor to prepare Sales Contracts and manage the conveyancing for you.
In some instances, Land Tax may also be payable on a property that is being sold.
Then of course, the sales agent's commission, marketing costs and perhaps auctioneer costs.
Also consider the holding costs. During the sales process you probably won't rent the villas and they'll be sitting empty on a fully drawn construction loan.
One of the advantages to holding and renting the properties on completion is that the interest you pay during the development process is tax deductible. However, if your intention is to sell on completion then you lose this important deduction during construction but also during the selling period.
I recommended Dave have a meeting with his accountant to make sure he understood the implications of selling.  A few weeks later, he called to tell me he's switched strategy and wanted to hold onto his properties. One of his reasons was to take advantage of the higher depreciation benefits and he wanted to build a property portfolio. His accountant showed him just how much income tax he could save himself as he was in a high tax bracket.
It wasn't long before we had found him a great site in Newcastle with a potential gross yield of 7%. This strong yield will make it easier for Dave to hold and continue on his property investment journey.
By going through the exercise of weighing up the pros and cons of holding, it helped Dave realise that if you are going to the trouble to develop property in the right location, you may as well hold to reap the immediate and future rewards. 
 
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Is it really worth selling on completion? Jo Chivers

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Last week one of my project managers used an interesting story to illustrate a point about being patient when developing property.    
Rich is a country lad brought up on a farm in rural NZ… no it wasn’t a sheep station. Lucky for me, he decided to ‘cross the ditch’ and settle in Australia to make his fortune in developing property in the Hunter Region of NSW. He was working with one of my builders when I discovered his expertise. It was some time later that we ended up working together. 
The message from Rich’s story was simple – “Pushing too hard at the wrong time can cause problems rather than solutions.”   
The message came about whilst discussing how we could fast track lodgement of a particular Development Application.  As project managers I knew we were doing all we could.  I also knew that the other people involved; our builder and engineering consultants, were too.  We wanted to illustrate this to our client.  And then Rich sat down with a steaming cuppa in his hand and spun me a yarn.
I thought I’d share his tale because it made sense, even to a city gal like me.  Hope you enjoy it as much as I did...
Rich:  On the farm we never had a dog to move the cows into the milking shed. But our neighbours did and they were always in a hurry to get the milking done for the day. One day I asked Dad; “Why don’t we have a dog to chase the cows like our neighbours?” 
He responded by saying, “Son, when a dog chases cows, by the time they arrive at the milking shed, they’re all nervous and tense because that dog has been snapping at their heels, barking and generally causing them grief. Because of this, those cows never milk for long and as a consequence, they don’t produce much milk.”
Rich explained that what those stressed out cows did was to produce a lot of crap. The cow manure mounted up quickly and ended up covering the shed while they stood waiting to be milked.  
The neighbours with dogs always finished milking earlier than us, but spent more time cleaning up their milking shed at the end.  They produced very little milk. 
When it was all washed up and done, we always finished around the same time as the neighbours. Although our cows milked longer, we had less to clean up and we always produced a lot more milk. 
Relating this back to our property development situation, the bottom line was if we did things properly and not rush the procurement and planning stages of the process, the delivery and close out will move along smoothly and end up producing a better, more profitable ‘on time’ result. 
My take out of Rich’s yarn: There are times for snappy dogs, but use them sparingly and intelligently. 
Property Bloom understands the need for speed, as do our builders.  At the end of the day we all want to complete the project quickly.  But what we really want to ensure is a development that is well planned, delivered efficiently and on budget - and hopefully with very little crap to clean up at the end!
 
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Jo Chivers

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