Sub Dividing in Adelaide

[pjvdl]

How long did it take and how much were the costs to subdivide? I guess by now construction would be underway.

If only construction was underway

I now have subdivision planning approval and construction planning approval. Demolition is underway so that I can get the new lots pegged and finalise the subdivision paperwork ready for submission to the DAC.

Ironically, it isn't the subdivision process that is holding everything up now, but rather the builder! I am still pre-contract with them (I only have a preliminary services agreement with them to get through council, etc.), but the process of finalising contract prices, framing costs and engineering ready for building approval is taking forever! They are an expanding small builder (50 - 60 homes / yr I think) and I suspect they are too busy for their own good at the moment. I must confess that, although I am happy with the quality of their work, they have been around a while and I have had good references from other developers who have used them, I am getting a little nervous that this go slow may extend into the construction phase

Anyway, subdivision costs are as I originally estimated, which is good. SA Water is my main cost, as I need new road services. See Torrens vs Community subdivision - Adelaide values, an earlier post on another thread of mine for these costs.

 

[pjvdl]

If 70-80% borrowing on end value cannot complete the job, I would really think that there is no profit in it.

Why do you say that? Admittedly I am completely new to this, but when I say that I need to fund 80% of the cost of my project, I am not saying that the construction will cost 80% of the final value. I am saying that I want to fund ALL of my costs, which I have calculated to be 80% of the final value. So this 80% includes:

- all subdivision costs
- all construction costs
- all landscaping and finishing costs
- capitalisation of the holding costs for the duration of the project (interest)
- all selling costs and commissions
- GST
- I think that is everything ...

So if my total costs, including GST, are 80% of the final value of the project, then should I not make 20% profit? Given this is my first project, this is the goal that I have set myself; one which I will be happy to achieve... and if I don't quite make that, then I will put it down to a learning experience and do better next time (assuming I don't completely f**k it up and go broke in the meantime)

 

[Gools]

PJ, there seem to be plenty of people that are happy to use their first development as a learning experience and if they make some money off it then that's great. Everyone will tell you that you want to make 30% from a project or it's not worth doing. I'm happy with a projected 20% (exclusive of CG over the period) but making sure my figures are 99% correct before hand.

So many builders are quoting 15 months at the moment for the whole process so it takes a bit of a cash buffer to get through that length of holding costs. I wonder why we bother some times!!

Adelaide market just keeps rolling onwards and upwards so if it takes 15 months then more projects than not have a pretty good capital gain along the way so that come in handy.

Where abouts are you building?

Gools

 

[pjvdl]

Yup, 30% would be nice

My 20% projected profit is excluding CG and assumes all of my 5% contingency is spent. This 5% may be a little low, but I am comfortable that I have got most of my costs nailed at this point. I think the only way I'm going to get close to 30% is if the market makes are solid gain over the next year or so. I am building in South Plympton, which seems to be a solid area for growth, so assuming we see a 5% gain or so over the next year, I may get my 20% a little higher. We'll see - I'm not counting on CG.

 

[andrew_woolman]

Has anyone heard of or used these guys? Subdivision Assistance, Adelaide.
http://www.subsa.com.au/

 

[kum yin lau]

Hi PJ, 20% nett is not bad especially with GST & contingency taken care of.

Have you considered holding on for 5 years after which there's no GST?

And is your GST calculation based on the margin scheme?

KY

 

[bcoombs]

Are you sure this is correct? Admittedly I am new to this, but the information I have received is that you need to have the titles issued before you can sell the properties, but that you can start building as soon as you have planning and building approval from the council (i.e. without subdivision approval).

The caveat to this is that council may not be keen to give planning approval without corresponding subdivision, particularily if you plan to build the new dwellings across existing title boundaries. Of course, if you choose to start building before you have subdivision approval, the other factor to consider is that you may be stuck with a number of dwellings on one title if for some reason your subdivision isn't approved

This really depends on the Council requirements. You can always sell subject to issue of titles. The new client signs a stat dec stipulating that they will build whats has been approved and take over the building contract.Then the council is happy to issue the approval in the new buyers name etc.
Get the agent to stipulate 10% deposit and this will also help you with your bank valuation for the rest. Once titles have been lodged the banks values on the completed val even prior to titles issued ( 3 months ). Never start building without planning and development approval.

 

[gooram]

Community titled a few thousand cheaper...always go torrens wherever possible in my opinion...peoples perception of a torrens titled home is worth more than community...

Check with your surveyor about the cost to put in services for a torrens title vs a community title.

The council fees in Perth are similar for green title vs survey strata title, however, there are different requirements for water/sewage and power for the two types, which can really affect the final cost.

 

[pjvdl]

Have you considered holding on for 5 years after which there's no GST?

Not really. I have other IPs which are working well (cash flow +ve), that I am planning to keep long term as a buy and hold strategy. One of the main drivers for doing a development rather than purchasing more buy and hold properties, is that I would like a relatively quick turn around to pay down the last remaining debt that I have on my PPOR. Depending on how this development goes, I may keep going, or revert back to a more conservative buy and hold strategy.

And is your GST calculation based on the margin scheme?

Yes it is. I purchased the properties from a private individual who was not registered for GST. According to my accountant I should be able to apply the margin scheme.

This really depends on the Council requirements. You can always sell subject to issue of titles.

For me at least, this issue has been overtaken by events. As I posted the other day in another thread, the subdivision process was quicker than I expected, and the building process slower. So I now have planning approval for the subdivision and construction and am in the process of trying to finalise contracts with the builder to proceed to building approval and finalising finance.

Check with your surveyor about the cost to put in services for a torrens title vs a community title.

This is something I did late last year. In short, about $46k for SA to lay new services for torrens title vs. around $4k for SA Water internal services and (approx.) 10k extra building costs for internal infrastructure to create 6 community titles from 2 torrens titles. On this basis, I decided to go with torrens title. See my Torrens vs Community subdivision - Adelaide values thread for more details.