If you want to become a competent property developer, it is important to walk before you can run, and work your way steadily towards bigger projects. If you’ve already successfully completed some cosmetic renovations and simple subdivisions, your next step as a developer is to tackle strata subdivision.
What is strata subdivision?
Strata subdivision allows for a developer to divide a building into multiple strata lots. Residential buildings can be subdivided into apartment buildings, townhouse developments, residential flats or multi-dwelling housing (where several dwellings exist at ground level on a single lot). Commercial premises can also be strata subdivided.
Obtaining permission for strata subdivision
Before applying for the necessary permissions, it’s worthwhile researching the local council planning department of the potential development area. This will help you ascertain whether the council is likely to throw any hurdles in front of you and whether they will be perceptive to the reasoning for your application.
At this juncture, it’s worth noting that if you pledge to put at least one-third of the finished units in your project into the affordable rental pool – this is where you charge low rent for a defined period – the local council may be more lenient when it comes to granting you permission.
However, it is important that you have these conversations with the council before proceeding with any property purchases or renovation work. The reality of strata subdivision development is that you’ll be buying a relatively large complex – a not-insignificant investment – and entering a niche market which is within the realm of the novice investor, but not quite large enough for the major players to touch.
Understanding regulations
Strata subdivision involves renovating an existing property so that units are separated into their own legal titles, and that all current building standards, such as fire ratings, are adhered to. You may also need to think about whether you’ll need to provide additional parking under the current regulations, among other considerations.
Due diligence in advance
It is incredibly important to perform due diligence well in advance so that you have an understanding of:
Council attitudes
Relevant application processes
Required upgrades to the property
How to adhere to current standards
When it comes to strata subdivision, it is all too easy to overlook compliance issues. Little things like forgetting that fire-rated walls need to reach all the way from the ground to the roof tiles can result in costly mistakes. It’s, therefore, crucial to leave no stone unturned: evaluate everything prior to starting the negotiation phase with the council.
New subdivision, new rules
While the existing property as it stands might not be subject to the latest ratings and rules, when you separate units into their own outright subdivisions, they become subject to current regulations. For example, you might not need to upgrade the current fire rating on a property left as-is, but once strata subdivision has taken place, you will be required to at additional cost.
Be financially realistic
Many novice developers think a simple strata subdivision will cost somewhere in the region of $20,000, without considering that much of these funds will be tied up in things like surveys, plans, council applications and land title fees. This is before even considering how much it might cost to ensure each unit is compliant with regard to current building regulations.
Risk reduction
Before undertaking a strata subdivision project, you should do your calculations and be aware of the potential overall costs of the project before entertaining the idea of entering a bid on a potential property.
To reduce your risk, you should only consider purchasing a property for this type of project if you’re feasibly able to offload it as it stands prior to subdivision. The last thing you want is to be left hugely out of pocket after discovering there are too many hoops to jump through to make strata subdivision a realistic possibility. There are many would-be developers in New South Wales who have experienced these pitfalls in recent years.
Understand the timeframes
Far too many new developers believe that strata subdivision is a quick and easy process, when in most cases the opposite is true. The average time frame from conception to completion for strata subdivision is between one and two years. To speed things up, try to use a private certifier if the council allows you to do so. Private certifiers can be useful in other ways too, as they can find workarounds for a variety of issues the council might have.
Delay settlement to your advantage
If you want to reduce the time frame (and potentially the number of hurdles) on your project, you can always delay settlement on the property. Ideally, you should attempt to secure a delayed settlement of between three to six months, which will allow you to perform the required works prior to application submission.
Conclusion
Like all property developments, the key to successful strata subdivision is to think outside of the box. Be prepared to compartmentalise individual problems, and deal with each one as they arise. It’s also a good idea to leave your ego and temper at the door when dealing with council officials. Ultimately, if you get on the wrong side of them, you’re not going to have a pleasant experience when making the relevant applications.
Sometimes, it’s easiest to remain humble, allow the local council officials to make their point, and then learn from their concerns to better understand how to amend your application to fit the required criteria. Even with the clearest of legislation, local planning applications can be something of an enigma. If needs be you should be prepared to consider utilising the services of a legal representative, project manager or construction specialist to help get your application over the line. In most cases, this can be more cost-effective than playing “trial and error” with your application.
For further help and advice on substrata divisions, why not contact Costas Constructions today? Our friendly and experienced team will be happy to discuss your project and offer advice on how our development solutions could help.