You spot a nice big block of land in a desirable suburb. Your bid for it is successful and your dream of building two or three townhouses and making a tidy profit are on track.
However, the track to development success could experience a number of unexpected detours along the way - one of the most common being local government planning regulations.
Director of KR Peters Peter Nicolls is a veteran of the development game with countless townhouse and multi-unit projects under his belt.
He said there are many and varied obstacles that stand in the way of a townhouse development running smoothly, obstacles that will impact on your budget and, ultimately, profit.
"A lot of people want to buy a block and develop it for profit, but it's not as simple or as straightforward as it sounds," he warned.
Mr Nicolls said it was important to identify what is on the site at the time of purchase and what may impact a smooth build.
Obstacles to watch out for include -
- The type of dwelling on the site.
- The presence of asbestos, for which there will be removal costs.
- Trees that need to be felled will also add to the demolition cost. Also check for trees on adjoining properties, especially trees located on side boundaries.
- Check if the site has vegetation protection. Roots belonging to trees that legally cannot be felled can affect the foundations of new dwellings, especially when you have no control. Most councils have a standard policy that nothing can be constructed within a 3 metre radius from the centre of a tree.
- Trees on the nature strips. This is important because if the existing tree is positioned in the way of a future driveway, council will not support the permit.
- Setbacks of adjoining properties as these determine the setback for your development.
- Easements need to be considered as side easements and rear easements have an effect on the cost of construction and minimum distance required to construct. This is known as the angle of repose.
- Drainage on the property. Existing drains may not have the capacity to service the new project and bigger and wider drains further increase the cost of construction.
Mr Nicolls advised spending time researching council regulations and policies in the local government area in which you want to build.
"Councils have minimum setback to front and sides of dwellings as well as setbacks to second and third levels. There are also regulations to do with minimum private open space," he explained.
"Councils also have open space requirements for which you may have to pay a contribution levy. The contribution is expressed as a percentage of the land area or the equivalent value of undeveloped land or a combination of both. Council contribution fees vary depending upon council. The fee could be as high as 10% of the current valuation obtained from the Valuer-General.
"A sound understanding of policies gives you a better chance of winning council's support in the first instance and could save you thousands of dollars. Local councils offer excellent advice on their websites on how to apply for a planning permit."
Thoughtful design
Townhouses and units come in all shapes and sizes and making sure that the product that you build is right for the market is vital said Mr Nicolls.
Too big and you could be overcapitalising. Too small and you could be undercapitalising.
Mr Nicolls said double garages are always preferred but not cost effective and he cautioned to also think carefully about bedrooms.
"You may yield an extra townhouse on the site by building two bedrooms instead of three bedrooms, but it may not get you the best return."
He advises booking a pre-application meeting with council planning officers prior to lodging a planning permit application.
Employ the right people
Employing the right people is vital when undertaking a project as complex as a multi-townhouse development. Take time to engage the right architect, draftsperson, land surveyor and engineer.
It is important that the architect or draftsperson that designs the plans has the experience and knowledge of Council's requirements and the ability to design a product that is cost effective to construct.
A land surveyor is required to prepare the plan of subdivision and lodge the relevant documentation with Pexa (an online property settlement service) to obtain the certificate of titles for each new allotment.
A landscape gardener is needed to prepare landscape plans that will form part of the planning permit, and an engineer is required to prepare a sustainable energy report and drainage plans that also form part of the planning permit.
VCAT
If the council you are dealing with refuses to grant you a permit, all is not lost. Developers can appeal to the Victorian Civil and Administrative Tribunal, a process that normally takes anywhere between 6 to 12 months, which unfortunately adds to the holding costs of the project.
"You need to allow approximately $50,000 to engage consultants to represent you including an urban planner that specialises in planning and engineering, an arborist, traffic consultants, or a lawyer that specialises in running VCAT planning matters," Mr Nicolls explained.
The home straight
After you have successfully navigated the planning system and construction is completed, you need to obtain a statement of compliance to lodge on Pexa before the new titles can be issued. This requires obtaining water and sewage authority certificates, an Electrical Safety Certificate, drainage and access certificates, having completed an NBN connection and proof of construction and landscaping completion.
Mr Nicolls said it is important to act quickly to avoid lengthy delays as you will be unable to settle a dwelling without titles.
Once all that is completed, the end of the track is in sight and you are ready to contact the team at KR Peters to help market and sell your finished project.