Forums / Property Investing / Value Adding / The value of selling with a DA/Town Planning permit?

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  • Profile photo of merfmerf
    Participant
    @merf
    Join Date: 2011
    Post Count: 3

    I have a 570m2 block in bayside Melbourne and have been considering going thru with Town Planning/DA for 2 Townhouses and then selling property to maximise it's value before moving onto some other real estate investing.

    I was wondering if there are any general "Rule of Thumb" as to how much value having a DA when selling the block would have.
    Speaking with various agents in the area I get conflicting opinions as to whether it's worth going thru this process or not.I have costs for Town planning and Architectural drawings.
    The land is bayside with views available with a 2nd storey and would be considered a valuable part of the future build.
    Any feedback would be greatly appreciated!

    Thanks.

    Profile photo of quickchickquickchick
    Member
    @quickchick
    Join Date: 2004
    Post Count: 168

    Hi Merf,

    Maybe the next step is to go back to the agents and ask if they have any recent sales of properties with DA's approved.
    Then do your sums carefully!

    Lots of questions arise. (Which you may have considered.)
    Will council allow 2 townhouses on this size block? (Read their Development Plan and discuss with Town planner.) If their DP plan says minimum of 600 m for 2 dwellings, including duall occupancy, then don't try to get a plan thru that they wont approve (like banging your head against a brick wall!) 
    How is the proposed street access, not near intersection or infrastructure (eg water or  sewer, powerpoles will add to cost if need to be moved.)  
    Are there easements that need to be considered on the block?

    Another consideration, if you proceed with the DA application and no-one wants to buy it (eg sharemarket instability, economics predictions bearish), what is plan B for you?
    Would you be prepared to engage a builder and have it built? ie can you afford this?
    it will involve heavy negative gearing on the property, plus finance to build.
    Or will you sell at "block only" price (maybe at a loss.)
     Are there buyers for vacant blocks?

    Maybe it is worth consulting with a local builder to see if there is interest from them in partnering with you?
    Or if they'd like to buy the block, DA ae buyers for your pproved, from you.
    They may have ideas of what they want the townhouses to look like in that area and may want to be involved in the DA process.
    (If so, get a contract drawn up with them that they have to buy after DA is approved, for a set price.)

    We tried to sell with DA, but had no interest so needed to have it built.
    We should have decided on a builder and have them get the plans drawn up thru them, would have been more time efficient (and therefore, profitable).

    Profile photo of BreeceBreece
    Participant
    @breece
    Join Date: 2011
    Post Count: 43

    Hi quickchick and Merf,
    I know this particular property very well.

    For all users of the forum, herein lies the danger of our variously different State based planning legislation. They’re all utterly different!
    What is true in Queensland isn’t necessarily so down here in Victoria.

    This is where it’s usually beneficial to engage a Town Planner to assess your site feasibility against the site specific planning controls.

    Here in Victoria, there are no planning controls that limits dual occ development in the Residential 1 Zone to a specific minimum lot sizes.
    The 300sqm rule of thumb is just a rule of thumb… And rules are made to be interpreted in different ways. It’s not uncommon nowadays to see three multi-unit developments with average lot sizes of 160-180sqm. (By the way, that doesn’t make it a new rule of thumb!)
    Merf’s block is 570sqm. With the right design response the proposed architect Merf has engaged will design two dwellings that fit well into the site context. With a thorough planning report that assesses the proposed development against the Design response, Site and Neighbourhood description, the relevant State and Local planning policies, Particular provisions, zone and overlay controls, and the requirements of Clause 55 (ResCode), Merf will successfully gain a town planning permit from Kingston Council.

    QuickChick makes a good point about liaising with local builders early in the process. Merf is fortunate that his proposed Architect has a proven track record and that he designs quality buildings that can be readily built to specification. (PM me for details).
    Unfortunately when clients try to cut corners and use a cheap bottom-end Draftsman or Architect, it costs them valuable time and money. There are too many real-life horror stories to risk it.
    So you might save $10k at the start of the project by not using a mid-level (e.g.) “XYZ Architects”.. When, by the end of the project your decision to engage (e.g) “ABC Drafting” has cost you at every turn, from the Town Planner who asks for design changes to meet compliance (Time/Money), the Councfurther requests further information (Time/Money), the building surveyor who won’t sign off on the building permit without additional details (Time/Money), to the builder who can’t read the working drawings and either makes errors or takes an additional 2 weeks on site…(Time/Money)
    From personal experience, I can assure you it’s a slippery slope. Something about monkeys and peanuts.

    So, what’s the moral of this story?
    Seek the right advice early in the process and save yourself time and money.

    All the best,
    Breece

    Profile photo of merfmerf
    Participant
    @merf
    Join Date: 2011
    Post Count: 3

    Breece: 
    Thanks for your valuable input.My original qestion was more along the lines of the value add to the block, if any, of the DA rather than the value of a draftsman (e.g abc) vs a quality Architect and town planner.

    Quickchick:
    Thanks for your thoughts and interesting experience,certainly food for thought.

    Many options,every road has plenty of twists and turns…depends on who you talk to!

    Profile photo of BreeceBreece
    Participant
    @breece
    Join Date: 2011
    Post Count: 43

    No worries Merf,
    Hopefully a few other forum members will be able to assist you with their own experiences.
    Cheers,
    Breece

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 573

    The additional value created would depend on how much profit there is left in building it. If your design is particularly innovative, or has got approval at much higher density than the zoning would normally have allowed, the extra value should be recognised in the sale price.

    I know of a house being sold with a DA in place for 5 townhouses at $950k. I just purchased a slightly smaller block (809 vs 1100 sqm) with a house on it for $369k, which has the same zoning and I will also get 5 townhouses on the block. This will cost approx $25-$30k for the DA and should add around $3-$400k in value, while still leaving approx $4-$500k in the deal for the developer. We are intending to do the build ourselves though and capture all of this value.

    Profile photo of MrWinfieldMrWinfield
    Participant
    @mrwinfield
    Join Date: 2009
    Post Count: 17

    Mattnz,

    Firstly, congratulations on purchasing, ( to what sounds like to me) a fabulous opportunity with huge return potential. Well done and good luck mate.

    The difference you paid for your 809sqm of land compared the other the person, ( great bargain and this is where you get the huge upside ) is miles apart from one another. How did u manage to find such great bargain? 

    Merf – I bought a piece of land in Nth Melb for $940k, 370sqm factory with vacant posession, mixed use zone, 2 yrs ago – got permits to build 4 townhouses, land value with permits came in at $1,4mil. A handy $400`k in the kitty. Hope this helps. 

    Hey Mattnz, would it be rude to ask where these blocks of land are located?

    Nice find and Good luck

    Profile photo of beediebeedie
    Participant
    @beedie
    Join Date: 2007
    Post Count: 158

    Its all about buying right in the first place…..

    DA will always get you a % value increase but it is dependent on the market/supply and demand.

    As the DA sites market is largely targeted to builders and developers that are looking at a shovel ready site…. A DA property in a bull market has a chance to  get a better return , in a bearish market like the present one where development finance is more difficult for example interest will be limited if you following the drift.

    I'm seeing a few  sites on the market  that where bought raw in the peaks of the last few years now with DA and back on the market but  only worth what the vendors paid for them originally at best remembering that builders/developers are going to be driven by how the  numbers  stack up not the emotional value of a site.

    Mattnz, in your example not knowing the suburb/details of the property on the market @ 950k for 5 (190K a site) sure the vendor doesn't fall in the above category ( dreaming) especially if you bought around the avg/or a bit below for the suburb?  We comparing apples with apples here?

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 573

    There is still money in the deal at $900k, just at around 20% profit margin, rather than 40-50%. Huge demand as the property is in Gladstone.

    I puchased under market, others with same land size and worse houses are currently selling for $450k. It sold the day after it was listed with huge interest from other developers. Another 1500 sqm block in the area with the same zoning, without a DA just sold for $1.1 million (with the house removed). There are huge price discrepencies, where some houses are sold without recognition of their development value, which makes it an ideal market.

    Profile photo of DMG PropertyDMG Property
    Member
    @dmg-property
    Join Date: 2010
    Post Count: 4

    Hi Mattnz
    That property wasn't in Flinders St was it? I just missed out on it and was kicking myself. I am looking at another atm. Would be great to have a chat if your keen.

    Gladstone is HOT!

    And cheers to the other posts – valuable info!

    mattnz
    Participant
    @mattnz
    Join Date: 2007
    Post Count: 573

    Yes, got 62 Flinders St, happened to be in Gladstone at the right time to seal the deal.

    Will send you a PM.

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