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 lands usage and appearance for example perhaps from a rural rezoned 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 s 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 off individually.
Subdivision is a great development strategy for the current market conditions. It gives you flexibility to play is 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.
So when would you subdivide?
An investor might buy a dwelling that is on a large piece of land, where they can renovate a house and then subdivide or perhaps you are 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 question you need to ask council is ‘what is the minimum lot size?’ You can find this out from your council’s Development Control Plan (DCP) for Subdivision and their guidelines. The minimum lot size will vary from council to council and from different zonings.
The residential minimum lot size will be smaller than the rural zoned land size. One council Property Bloom works with has a residential minimum lot size is 450sqm. So we can subdivide a 900sqm corner block into two lots. However, if we had a 900sqm piece of land that was not on a corner, then we could not subdivide this, as we also need to allow for a driveway to access the back lot and the area needed for the driveway is in addition to the minimum 450sqm. So we need a block of land approximately 1100sqm in size 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 900sqm in size and the minimum lot size is 450sqm you can literally 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 council the smoothest.
Strata Subdivision – 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 – Dividing one land lot into two or more separate land titles. This form of subdivision gives the owner complete autonomy with their land as they don’t have to answer to the strata manager or adhere to certain strata rules and regulations.
Community Subdivision – A development with common property such as roads may be used by all residents.
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 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 also discuss your subdivision strategy with an accountant and understand the 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 literally money in this type of development.
Getting the location right can either make or break your development success. Research is essential to ensure you are developing 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 at a radius of a few hours outside of a capital city allows you to be more creative in your development. There may also be more room for growth in the outskirts especially if there is investment in infrastructure taking place in that area.
Choosing the Right Property
- The first item you need to properly assess a potential subdivision site is a survey. It’s amazing how many sales contracts I review that do not include a survey. 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.
- The next item I always ask for is the sewer diagram. You need to know where the sewer is located and if it is actually feasible, based on the slope of the land, to cost effectively extend the service to service a new lot.
- You need to check the slope of the site for drainage issues.
- Check the aspect of the site and think ahead of where any new dwellings will sit to take advantage of the aspect.
- Research the zoning regulations and read 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.
There are many more things to consider when planning a subdivision, so make sure you engage professionals to assist you 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.