Land ahoy! The dirty truth…

Land ahoy! The dirty truth…

Think all land looks the same? Think again. Choosing the wrong dirt could make or break your portfolio!

Land is quite a popular option among many investors, and often for good reason. New land releases can often be in locations soon to be laden with infrastructure upgrades, brand new shiny amenities and well kept parklands that secretly are being primed for development awards.

But can you go wrong with land? You most certainly can. You might think there is no difference between different patches of dirt, but you would be very mistaken.

It can be crucial to make sure you do some investigating and digging (not the physical kind) before you go ahead and place that holding deposit.

Time

When depositing on a block of land, in many cases you are putting your money down before an excavator has begun. How are you meant to know what the area looks like? The sales agent may be telling you it’s between the two trees, just before the kangaroo, but that means nothing when the bitumen road runs through.

Because you are buying so early, it can be a concern. Are you buying at an unsustainable rate? What will happen in the next 12 months? You’ll want to make sure that your lot is safeguarded, and that there is supporting infrastructure following it, otherwise your dirt may remain dirt cheap.

Developers

Do your research and find out who is tossing the dirt on your behalf. Buying in estates from Mirvac, Stockland and Lend Lease can provide you some safety, as these are the big players and unlikely to go bust or play dirty games (excuse the dirt puns).

You won’t want to buy and wait 12 months only to find the developer is playing dirty, and trying to rescind your contract to pocket the capital gains for themselves. You’ll also want to make sure they are capable of completing a land subdivision. Find out what they have done before. Call agents and ask how the process went and on time.

Development Applications and Funding

Time can be of the essence in your process, particularly if you look to lock yourself into a fixed building contract soon after. Find out in your development whether the developer has achieved his DA, or whether it is still pending. This is very important. If the DA is with council, just write off that expected completion time frame.

In most cases, the DA will be held up, and thus the construction time frame may also be pushed back. Don’t expect it to be completely on time, between the DA, weather, construction time frames, I always recommend adding 3-4 months onto any expectations being sold to you, as some things are out of the developer’s control.

Make sure to ask whether the developer has hit their funding requirements. These days, a bank will require a certain amount of pre-sales before they will attain funding to begin their development. You don’t want to be one of those lucky first few, because if sales are slow, the tractors won’t be hitting the dirt anytime soon!

Location location!

It may be a new area, but picking the right location before it kicks off is important. Research where the local schools will be, or are, the transport, arterial roads and parks. Situating yourself near the future amenities may pay big dollars one day, when the area becomes established. Being close (but not right on) major roads means more potential chance of transport routes and services too.

Make sure you don’t just go for the cheapest option, because there is a reason why the land is dirt cheap, it’s probably dirt awful.

Facing

It can be important to find a block with the right facing. Modern day development laws require a certain amount of sunlight into the private outdoor spaces in most jurisdictions, but still, North facing is the prevailing favourite, followed by East facing blocks. These have the most sunlight across most of the year. Capitalise on that, and try to avoid the lot that’ll be more in the shade than others.

Some cultures also have a preference to not have a south facing front door for example. Understand what makes that market tick, the demographic, and cater to those, as these will be your eventual customers, clients, tenants and purchasers.

High or low?

While for some it won’t matter, on a slope laden block, the higher side of the street is generally universally favoured over the lower side.

Be careful with sloped blocks. Most builders will have contingencies for 1m of fall (from front of block to back), however between 1-1.5m of fall, and you’ll be forking out more $$ to cover for retaining walls, drop-edge beams and excavation. That can be a stinging cost that builders can’t quote till they get a surveyor on site after registration.

Buy anything with 1.5m of fall or higher, and you’ll be stuck looking for a custom builder. While they may have great designs and quality, you’ll be stuck with a bigger bill at the end, as almost all the major builders across the country will run for the hills.

Easements

Easements seem to be the dirty word in land, however you can use it to your advantage. The main thing is to be completely sure of what easements may be on your block. Consult construction plans, servicing diagrams, electrical diagrams and stormwater diagrams to know where the restrictions are.

Also ask for the 88B Certificate (NSW, other states have equivalents), which dictate which lots are burdened with easements. This is important, as an easement like one for a water pipe or stormwater drain can impact your buildable area.

Also watch out for the locations of the big green power boxes (not the small ones, they are standard and often do not show up on title). Sometimes, when they are tucked away at the rear corner, they do not affect much at all, and you can case them in most cases so they aren’t visible. However, most builders will require an increase to the bushfire levels when they build, which can mean more $$$.

However choose a lot with a Green Box that’s tucked away, you may be able to get a good discount. Just hide it behind a fence or shrubbery, and you won’t notice a thing!

Zoning Differences, conservation and bushfire zones

It is important to understand the different zonings you are buying. For example, in Sydney there are lots that are zoned R2, and E4 (in certain jurisdictions). These zonings are both residential zonings to an extent, however have different constraints attached. E4 carries ecological protection conditions, and while it will unlikely affect the building pad you have, it can create extra costs, or community title scheme costs to budget for. These are unnecessary costs in many cases when you’re simply looking to invest.

Bushfire and ecological asset protection zones (or similar) are others that may affect you. Know what the different levels are, whether they affect you or not, as they could create costly increases to your building side of things.

Restrictive Covenants

A restrictive covenant in a legal sense is a covenant (promise made by a deed – contract) that restricts you from doing something. In practicality, a Restrictive Covenant can cause design guidelines on the land you are looking to buy, which may mean you have to have certain colours, design features, letterboxes that you need to build with.

Whether you want to test fate and not comply, which your builder won’t be happy with or may refuse to do is another potentially costly endeavour (legal action), but it may increase the costs of your build.

It is not always a bad thing however, good well constructed design guidelines can increase the value of the community as they are aesthetically pleasing. The rule of thumb here is to understand what the guidelines are, and what you need to make sure you follow.

Author

Michael Turner is a Property Development and Analytics Specialist operating in Sydney’s Growth Centres and corridors. He is a Director of YPI, along with several roles at property development firms and agencies. He can often be heard on various radio mediums talking about Football and Property. You can find him on Twitter @mturnerypi or email him directly at m.turner@youngpropertyinvestor.com

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