Property Subdivision

A subdivision is just what its name implies – dividing a single piece of property into smaller, separate pieces or ‘lots’ usually with the purpose of selling the divided lots or to allow for future development. The rewards of subdivision can be considerable if it’s done correctly but can also be extremely costly if handled badly.

With the current shortage of available land in prime residential locations, canny investors are looking at their backyards as potential goldmines. Subdividing your property into two or more housing lots can be a shortcut to expanding your investment portfolio but the process isn’t always as easy as building another house in your backyard.

The rules of subdivision
Subdivision involves dividing a piece of land into two or more lots with individual titles. This process is governed by various planning acts that differ in each state and are interpreted and implemented by local councils.
Before you consider subdividing an allotment – whether your own property of an investment lot – you’ll need to consult your local Council for any specific regulations. In general, most Council’s have minimum size restrictions governing land which can be subdivided.

You’ll also need to determine what zoning will apply to your land, what the minimum land requirements are, if there are any terms and conditions, easement regulations, and whether there are any potential restrictions on your subdivision rights.

If this all seems too complicated, you can also enlist the help of a subdivision project manager, who’ll oversee the whole permitting process from start to finish. If you’re keen to build on your new lot, they can often also organise a builder for you too.

Risks and pitfalls
Subdivision is certainly not something for the passive investor; it can be complex and costly, putting a strain on your financial and emotional resources. Submitting plans and negotiating with councils can take months (or years) and cost many thousands of dollars with application process often involving various consultancy and permit fees.

You may run into disagreements with neighbours or environmental groups, which can turn into lengthy (not to mention costly) legal battles. On top of this building costs can be high and the length of the project can mean a delayed return and an extended debt.

Subdivision projects are usually very speculative, making the potential return highly vulnerable to volatility in the property market. There is a need to sell any new dwelling straight away to minimise depreciation, yet lack of building and market knowledge can produce a product that is hard to sell.
If you plan on subdividing your own land make sure any building to undertake is worth the possible loss of space, privacy and amenity.

Potential benefits
Subdivision isn’t all doom and gloom though. For successful investors the rewards of subdivision can be considerable. The opportunity to create a product to fulfil the specific demands of the market can bring high returns, instantly doubling a property's capital value. This initial profit yield can then be reinvested, quickly boosting your investment portfolio.

As with any investment, the key is to do your homework first and understand that any potential return is often balanced with equal risk. Consult experts such as builders and architects, liaise with regulatory authorities and shop around for smart finance. Then assess the feasibility of the project and create a detailed investment plan, and the hard work will probably pay off.

It's easy to dismiss subdivision as something only an experienced property investor would tackle. But with some know-how and common sense even a novice can begin to consider this high profit-potential an option.

July 2011