DA uplift - free equity

Hello,

Apologies if this has been asked before. I did a quick search but couldn't seem to find what I was looking for. I would like to know whether this is a common scenario for developers.

Acquire development site worth x value
Acquire appropriate development approval
Development site with DA now worth more than development site alone, created equity
Equity now used for proceeding with the development, going forth with construction.

Is this a workable strategy or sound reasoning?

Thank you

 

Your dreamin!

When valuers value residential property they do as is. They don't take into account potential with subdivisions etc etc.

I think you will have a hard time.

 

Ha, i'd rather know that I am dreaming now! Thanks for the heads up.

 

Not dreaming at all.... I have done this very same thing for decades. It's not as easy as you think, but the strategy works. You need a massive database of potential buyers, which will include builders, developers, land bankers, acquisition agents for large funds etc.. They will value the site according to their own strategy and long-term needs.

They are all trying to do the same thing, so if you think you can just buy a hobby farm and get a DA for a 100 lot subdivision then Terry is right, you're dreamin'. But, if you have the cash and the time to take a project through Council, which can take years and payments to several consultants, then the DA will improve the attractiveness of the site (to the right buyer).

Dream on!

 

Agree
Also people don't realise DA wont work if there is not enough fat for the buyer ie developer/builder, no one will buy it.
Designs must also be good, otherwise why would anyone buy

If its a hot market as is currently in Melb makes it much easier to sell

 

Thanks for the advice guys. I was originally looking at it in regards to equity which could be used to help secure finance go proceed with the development yourself. As pointed out, valuers will only value as is so that won't work.

In regards to the getting a DA and then onselling it to another buyer - thanks for the advice. Doesn't appear to be easy.

To give you context to my question. I recently completed a course by Bob Anderson and within the course handbook - he advised that equity could be created in such a way (DA uplift) to then be used to increase your equity position (in the eyes of a lender) and as such would not need to put as much capital in yourself for the development to proceed. I presume that it may of been possible in the past.....

 

Yes but it would generally only be in the scenario of a commercial loan product. With residential lending products it generally doesn't look at the developability of the site but commercial lending does.
Commercial lending looks at the developability and the end values of what you will build vs the cost of the build. The better the end value, the lower the construction the less amount of cash you "might" need to put in. I say might because commercial lending LVRs and interest rates are based on your experience, builders experience, market supply, location etc etc
I don't think you could ever get it down to 0 though.

A similar idea might be to subdivide the land prior to building. For example if you have a block and DA to build 4 townhouses then you are building 4 in one line (or one title) which means increased deposits to make work on a LVR of 80 or so. BUT if you subdivided the block into 4 titles and these smaller blocks are worth more than one quarter of the old parent block then you have 4 construction loans and 4 houses each on their own title which may value up for $0 needed to put in.

 

I've saw this crop up a few times and it has been mentioned to me previously. Why is it that a valuer will provide a haircut - what are the reasons? Trying to get my head around it.

 

What if htey have to sell all 4 at once? They may need to take a haircut on price.

 

Mainly because there isn't the same market for purchasing 4 units as there is one unit. Less demand, lower value.