Subdivision: the most obvious option is rarely the best one

Subdivision is one of the many ways you can develop property. It involves converting one piece of land or existing dwellings into several.

Raw land subdivision entails legally and physically converting raw, undeveloped land into developed land so that one or more buildings – residential, commercial or industrial – can be constructed.

As you will be changing the land’s usage and appearance, for example, perhaps from a rural zoned paddock into a residential land subdivision, you’ll also be building the infrastructure required, such as roads, paths, drainage systems, water, sewerage and perhaps even public utilities such as a park.

You can also subdivide developed land – much more easily – by simply splitting a block in half.

Subdivision of existing buildings is the conversion of a single title to multiple titles. For instance, a block of 10 units on a single title – often referred to as units ‘in one line’ – can be converted into individual titles, such a strata title. This is a great way to add value to the properties and allows you to sell them individually.

Subdivision is a great development strategy for current market conditions. It gives you flexibility to play it safe and sell off a newly created piece of land to reduce your loan, or to hold and add value to the property by registering the new lots and holding, or further developing, them.

The objective here is to have a creative outlook while searching for potential subdivision sites as it is this creativity that can determine the success of the development.

When to subdivide?

An investor might buy a dwelling on a large piece of land, where they can renovate a house and then subdivide, or perhaps it is a homeowner living on a potential development site where subdivision may be permissible.

The site will, however, need to adhere to the council regulations. The first thing you need to ask the council is the minimum lot size. You can find this out from your council’s development control plan for subdivision and their guidelines.

The minimum lot size will vary from council to council, and in different zonings. For instance, the residential minimum lot size will be smaller than rural-zoned land. One council I work with has a residential minimum lot size of 450 square metres – so we can subdivide a 900-square-metre corner block into two lots.

However, if we had a 900-square-metre piece of land that was not on a corner, we could not subdivide this, as we need to allow for a driveway to access the back lot and the area needed for the driveway is in addition to the minimum 450 square metres. So we would need a block of about 1100 square metres to be able to subdivide and allow for our access handle.

Another type of property to look for is land with two street frontages, so if it is 900 square metres, you can cut it in half and each lot will have its own street frontage.

Different types of subdivision

When looking to develop with subdivision, it’s important you understand the different types of subdivisions. Getting professional advice will help you to make the best decision for your site and also which potential purchase will make the process through the council the smoothest.

Strata subdivision is dividing a property into separate units, apartments or villas. Strata is land title based on the horizontal division of air space and may involve common areas shared by each title holder and usually managed by a strata manager.

Torrens subdivision is dividing one land lot into two or more land titles. This form of subdivision gives the owner autonomy with their land as they don’t have to answer to the strata manager or adhere to strata rules and regulations.

Community subdivision is a development with common property such as roads may be used by all residents.

The figures

When budgeting for your subdivision, you’ll need to start with a realistic target for how much the completed development will be worth, and then subtract costs, to calculate profitability. It’s important to run a feasibility analysis on the subdivision (covered in last week’s article) including possible costs for stamp duty, legal fees, surveyor services, council application and developer charges, civil works and service connections such as gas electricity and water.

Make sure you discuss your subdivision strategy with an accountant and understand the possible tax and GST implications if you are planning to sell. You will also need to estimate your holding costs, such as interest on your loan and rates. Remember, if it’s a straight land subdivision you won’t have an income from the property to help offset your holding costs, so time is money in this type of development.

Location

Getting the location right can make or break your development success. Research is vital here to ensure you are building a property where people in that area want to live. You have to totally remove yourself from the development as you won’t be living in it – your target market will be.

Inner cities are limited with the availability of land, so in this case strata division is being created through developments. Looking up to two hours outside the city allows you to be more creative in your development, plus you can usually create a Torrens subdivision. There may also be more room for growth in the outskirts especially if there is some infrastructure taking place in that area.

Choosing the right property

• The first thing you need to properly assess a potential subdivision site is a survey. It’s amazing how many sales contracts I review that do not have a survey. So you may need to pay for this before exchanging as you need to be sure of the land size and whether there are any easements affecting it.
• Get sewer diagram. You need to know where the sewer is located and if it is feasible, based on the slope of the land, to cost effectively extend it to service a new lot.
• Check the slope of the site for drainage issues.
• Check the aspect of the site and think ahead about where any new dwellings will sit to take advantage of the aspect.
• Research the zoning regulations and read the council’s subdivision guidelines.
• Compare market value – is vacant land in demand?
• Check service connections – is there sewer available in the area, is there an electricity source close by?
• Corner blocks are good for your first subdivision
• Structure of property – this is important if you are developing a strata division as the building will need to be structurally sound to handle the requirements, such as firewalls, between units.
• Have your solicitor check for restrictive covenants or easements. You may find land in a new estate has a covenant over it that does not allow for further subdivision.

DA approval

Getting a surveyor to manage your subdivision DA can save you a lot of time. If you’re researching a new area, start with a local surveyor. They can give you advice on the subdivision process and cost indications. You need to use a surveyor to prepare your subdivision plan.

Once you have abided by the council’s regulations, it is the residents you may need to win over. Generally if the land you’re subdividing meets zoning requirements and you comply with the subdivision development control plan, there should be little your neighbours can do about your subdivision, however it is always a nice gesture to talk to them about your plans.

I always look at the best way to subdivide as part of our development process; the way that will be most cost-effective and not hold up the development process. We have found in many instances it is not the most obvious way.

What may look like a simple subdivision can turn into months and months of complicated work. The plumbing and civil works alone can really blow out a budget, so it’s important to understand the entire process before you embark on your first subdivision.

There are many more things to consider when planning a subdivision, so make sure you engage professionals to assist if you’re a beginner. A development project manager will be able to work with you on every stage of the process and you’ll be amazed at how much you learn along the way.