What is property development?
Property development is the business of buying land and buildings, improving them and then selling them for a profit. The Environmental Planning and Assessment Act 1979 (NSW) regulates the development of land in NSW.
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6 Stages to Property Development
1. Pre- purchase – Site analysis
This stage is arguably the most important stage as it requires you to research and enquire on land which has, or will have, approval from council to construct your desired number of dwellings. You may want to consider whether the site is developable, whether it is profitable, the size of the land, what can you build on the site, how many units are allowed, what are the restrictions and an analysis of the neighbourhood’s characteristics as certain areas may require particulars to be reserved. Council’s records of planning policies may give an insight to these matters to consider and may be accessible online or for a fee.
It is also crucial that you discuss with your financial institution to gauge an understanding of your borrowing capacity so you know your limits as to what you can purchase. This will also enable you to narrow your search and save you time.
It is advisable that you consult your solicitor, accountant and financial advisor before putting down a deposit.
This stage involves acquiring the land at a price agreeable between the purchaser and the vendor. This price will be negotiated between the parties to allow you to make a profit and to deem whether the project is viable.
3. Development and planning
This stage is where you essentially engage experts for the development and planning for the site you have acquired. These experts include, but are not limited to:
- Town planners;
- Civil engineers;
- Quantity surveyors;
- Landscape designers; and
You will be required to obtain Development Approval (DA) from council, which is essentially your planning approval. It will ensure that your proposed developments is suitable for your site and is in accordance with the planning requirements. Some sites may not require DA as it may be exempt. It is advisable that you check with council and other experts such as a town planner, as this may save you a lot of time. If you require DA, you must submit the relevant documents to the relevant authority for approval.
The DA provides a guideline as to what Council will allow you to build, however it does not say how you should build. A Building Application (BA) requires that you submit documents to a building certifier for building approval. A BA ensures that a building is structurally sound, complies with the necessary provisions such as fire resistance, what materials should be used, where electrical fittings should go, and so on.
4. Pre-implementation stage
You may wish to obtain quotes across all experts for the best possible price, without affecting the quality of the product. You will need to consult your bank as to how much funds you can obtain to engage experts and the materials required.
You may want to check the quality of the materials as well as the inclusions in the builder’s scope of work regarding, but not limited to:
5. Implementation stage – Construction
As the name suggests, this is where the builders put all the materials to construct the developmental site. This stage is arguably one of the most exciting stages of the development as you will be able to see your plans come to fruition.
Now that your development project has been completed, you may decide to either sell or lease the premises. If you decide you sell, you may have the option to sell the property before it is completed, or after it is completed.
Selling the property before it is ready allows risks to be reduced. This pressure would usually be enforced by banks to ensure that the loan provided to your will be paid. This may however reduce your profit margins are you may need to engage other professionals to assist you in marketing a property that cannot be inspected.
This is where the property has been completed and the purchaser is about to see and inspect the property. However, the downside to waiting until it is completed is that interest will be accruing for every day that the property is not sold. It may be profitable to have a mixture of both properties – to sell some pre-sale and hold onto some post-sale.