I've seen it a lot. A sub-dividable block will be next to a regular block, and only commands a small premium, say 20% (e.g. 400k regular vs. 500k sub-dividable).
But someone could come in, tear it down, and cut it up and sell each one for 70-80% of the price of a regular block with a house on it.
So why is it the premiums are generally small compared to what people could make out of it? I'm a little confused...BASICALLY: doesn't it stand to reason that if you can almost double your money, then the property should be worth almost double as much?
Is it because the market for smaller houses is limited? Or that it's a lot of trouble to get DA? Or is it that the vast majority of people simply prefer to buy established homes and therefore they tend to take ages to sell and therefore have high holding costs?
EDIT: I think I've figured it out.
Say on average 50% of properties can be legally sub-divided. Now let's assume only 5% are worth sub-dividing (in really good areas, near shops, transport etc). I bet this number outweighs the amount of developers out there. So if there are only enough developers out there to consume 2% of these properties, there's another 3% being sold to regular people who just don't care and therefore aren't willing to pay a premium. Since demand doesn't outweigh supply, this leads to only a small premium. I'm pretty sure this is it!
But someone could come in, tear it down, and cut it up and sell each one for 70-80% of the price of a regular block with a house on it.
So why is it the premiums are generally small compared to what people could make out of it? I'm a little confused...BASICALLY: doesn't it stand to reason that if you can almost double your money, then the property should be worth almost double as much?
Is it because the market for smaller houses is limited? Or that it's a lot of trouble to get DA? Or is it that the vast majority of people simply prefer to buy established homes and therefore they tend to take ages to sell and therefore have high holding costs?
EDIT: I think I've figured it out.
Say on average 50% of properties can be legally sub-divided. Now let's assume only 5% are worth sub-dividing (in really good areas, near shops, transport etc). I bet this number outweighs the amount of developers out there. So if there are only enough developers out there to consume 2% of these properties, there's another 3% being sold to regular people who just don't care and therefore aren't willing to pay a premium. Since demand doesn't outweigh supply, this leads to only a small premium. I'm pretty sure this is it!
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