“There’s massive uncertainty looming. With the market tightening, with finance tightening – if it’s got the DA (development approval), if it’s got certainty around levies – those sites will be more valuable (the development ready sites) than they perhaps have been a year ago or more.
“If you’ve got the right relationship with your financier, if you can move without heavy pre-sales to start your project, you’re going to be in a really good position to do well in the market in the next two years.”
This insight was put forward by Michael Corcoran, Director at Solido Capital, at our recent industry event.
Corcoran raises an interesting point. The property development market is constantly evolving. When there are a number of variable factors which may result in some level of stagnation, pre-approved development sites for sale bring confidence to the marketplace which in turn brings benefits for all involved.
Ultimately when we talk about the added value a DA brings, we are talking about the financial benefits to be gained with saving development time.
Where’s the uncertainty
Currently, many big lenders are instigating changes to valuations, deposit sizes and other terms and conditions which impact apartment and home buyers. This comes in response to increased pressure from regulatory bodies urging banks to improve prudential controls.
Corcoran suggests that the recent changes to financing have impeded some market growth. While many believe that these ‘tightenings’ are good for the long term sustainability of the property development sector, this has also led to some market sector uncertainty in 2018.
How does development approval add value to a site
Gaining Development Approval (DA) is often a time consuming laborious exercise. Development plans need to meretriciously adhere to respective council’s guidelines, on important issues including infringements on residential amenities, the environment, and/or preservation of any heritage.
The cost, and importantly time, required to gain the appropriate DA varies between councils and delays may affect the estimated cost of development. The expectation is that the value of the site increases above the cost of obtaining the DA – invariably this is the case. The main reason for this is the time factor involved.
Time is often the most critical factor of any property development project. The longer the duration of the project, the more additional costs that are likely to be incurred – the astute developers understand how to keep each down.
Alex Steffan of Propertease, conducted a small investigation into the price increase a DA can provide. From his small sample size, he did find a clear ‘value-add’ for properties including a DA.
What developers pay for, when paying extra for an accompanying DA, they plan to make up in time saved. This is how recently a vendor in NSW sold a property for $580,000 more than he bought it for without any physical labour going into the project.
Move quickly, do well
A project that runs overtime not only costs more, but is also less adaptable to changing market conditions and this is at the crux of Corcoran’s main point.
We’re currently experiencing changes in many facets; lending regulations, market tightening nationally and overseas, and other emerging markets surpassing Australia for offshore investor demand. A DA attached to a development site will save developers stress, costs and valuable time.
Those developers with the ability to move swiftly with projects, and those that have the appropriately structured financing, are in a healthier position to do well in the market; they’re more adaptable.
This is why, for the most part, developers are willing to pay an added premium for a development approved site – and why in a market which is susceptible to a number of unpredictable factors, saving time matters more than ever.
