WA Help with development feasibility in Coolbellup

Hey guys,

Bit of a newby to the development world but have been sitting on the sidelines waiting to have a go. Have bought and sold a few properties, developed one but am keen to step it up and try something a little larger.

I have a relative who has an R60 site in Coolbellup and wants me to develop it with them. They have no experience so it would be myself undertaking the majority of the project. Have been speaking to agents and it seems that 2 bed apartments aren't really selling in the area but there was a successful project of 2x2 two storey townhouses that sold quite well in nearby Clontarf st, Hamilton Hill. So would look into putting a similar product on this site for around $212K per unit. Townhouses will be quite small 110m2 to 120m2, they will have a roof terrace. Am a little bit nervous about the idea of introducing a new product into Coolbellup, does anyone have any thoughts on this?

One agent is building this product at the moment in Coolbellup, construction should be finished in 6 months so would be a good yard stick.

As far as feasibility is concerned, i've touched base with the builder and have attached the feasibility. Can someone explain why the numbers look so good when taking into account GST like the attached feasibility? Seems like the GST thing works in the developers favour is that correct? As when I don't include GST charges and deductions my profit is lower.

Any comments or suggestions based on these numbers? Apart from adding say $150K holding costs?
I thought 'other expenses' might be a little low including POS contributions (how do you calc that??) and other subdivision costs?

 

Have you thought about the following?

• Marketing and selling costs
• Legals (purchase & sale)
• Build cost - $188k (ex gst) - does this include:
  • Ground works?
  • external works?
  • landscaping?
  • Carport/garage?
  • Level of finishing inside?
• Finance cost (this is a six-pack, residential mortgage may not be available)? You will face additional costs eg: paying valuation fees, may require pre-sales? (You haven't mentioned LVR for the deal)
• GST payable (1/11 of sale - GST credit or margin scheme)?
• Holding costs

 

I'd be nervous about such a product and project too. What did the townhouses in Hammy Hill sell for?

I think the safer and easier money are the retain and subdivides in Coobie.

 

Demolition, soft costs. That feaso is way too basic.

 

Unfortunately there is not nearly enough detail in that feasibility for you to do due diligence to decide if it would work for you.

The costs of doing a development are high
- POS contributions - the council can help advise
- interest on the loan amount - this would be a commercial loan and a lot of money
- rates, council fees, architect fees, town planner fees etc
- selling fees

Every single figure in that needs to be checked and double checked and much of it is probably the work the builder may have done and might not want to share how it was worked out

How big is the block? It must be quite a size to build 6 on it - more than 900 sqm??

 

Demolition, site prep, retaining, design costs, planning/development application costs, WAPC costs, site works, turn key finishes, landscaping, fencing and so on.

Work out what level of finish is going to suit the area.

 

Thanks for replies.

The builder indicated that this would be a turnkey cost.
Will also factor in the demo, rates, council fees etc and see what numbers come out. Expecting south of 20%. maybe 13-15%
@thatbum - townhouses in hammy hill sold for $430K-$450K i think. Agent who is building a similar product at the moment in coolby is expecting to market at from $399K
@Westminster - block size is 728m2 hence the small townhouse size of 110m2. Pretty tight with a 70% plot ratio?!!

 

I'm sorry but you can't use plot ratio for townhouses. They are 2 different things. Plot ratio is for apartments (aka multiple dwellings in the rcodes) and min and average lot size of 120sqm and 150sqm for villas/townhouses (aka grouped dwellings in the rcodes).
There is a work around to make townhouses overlap each other a little so they are considered multiple dwellings but it means they need to be constructed as Class 2 dwellings instead of Class 1 dwellings (its a Building Codes of Aus thing) and Class 2 is a lot more expensive as you need to meet very stringent apartment Fire/Acoustic requirements.

You would need to double check those sale prices for Hammy Hill and the location to see it's superior etc and double check the location of the agent's Cooby townhouses and his level of finish/design in comparison to see if yours would be worth the same/higher/lower

I wouldn't be doing it for 13-15%. Especially not in conjunction with someone else's money as you have a "duty of care" so to speak if you are advising and doing it on behalf of them. Any further downturn in market, unforeseen costs etc could bring that perilously close to nothing for an awful lot of work.

 

Always so great that you continually to share your knowledge and give people your time to educate

 

Thanks @Scaphella

 

thanks @Westminster and everyone else for their input. I have a little more homework to do on this one. Seems like nothing I look at pulls 20% at the moment! Is that still the magic number these days or are some developers pulling the trigger on developments at 15%?

Seems like some builders margins are down below 15% these days.

 

The feasibility is very high level - more like a sketch than a feasibility.

But it shows you are paying the ato 172k on sale of the units and claiming 132k back from the ato.

That indicates a net gst cost to you of 40k.

I am not sure how that helps the developer - it is a cost.

 

For me it depends on the expected time frame of the project but generally I'm not ( i know many others are) interested in anything that shows less than 25-30% gross return on TDC. For the amount of risk taken and effort involved it's just not worth it to me to go any lower because you can be certain that the gross percentage will get eaten bit by bit along the way and you never know what you'll be left with until the fat lady sings.

 

Personally I would avoid this one like the plague in your situation.

I don't see R60 small sites in areas like coolbellup being profitable at the moment, someone with absolute intimate knowledge of the local market and experience would be needed because margin for error is pretty small here IMO and in this case chance of it going well is IMO smaller than going badly.

Also, be careful basing too much on the word of a builder giving an estimate as it can often be wildly inaccurate.

I'd also drop the rooftop deck, cost involved in double storey construction+a deck would blow it all out


Besides at the sizes you're discussing there is ample room for parking and an outdoor area, I've done spacious 3x2 with double garage and 2 living areas+20sqm outdoor on 160 and 170 sqm in past which @Aaron Sice designed

 

62A Central Ave Maylands WA 6051 http://www.realestate.com.au/sold/property-townhouse-wa-maylands-114609471

62B Central Ave Maylands WA 6051 http://www.realestate.com.au/sold/property-townhouse-wa-maylands-114816003

62 Central Avenue Maylands WA 6051 http://www.realestate.com.au/sold/property-house-wa-maylands-110592365

This is the project I referred to above, worth someone in your situation studying due to some parallels.
Site was purchased around 2010, R60 size was somewhere in the 600s or low 700s from memory. Market was similar in some respects, really flat with there not being much margin for error and feasos needing to be very conservative

House was a very dated etc but the site, despite supporting 4 brand new 3x2 townhouses, could not justify the expenditure and the project ended up being better off with 3 lots all up instead of 4

In your case, I believe you will be overcapitalising and will not see the return you'd like

 

Looks great @sanj , was that an Inspired build?

 

No, and I would not recommend inspired to my worst enemy

Ended up renovating the front home and then selling the rear 2 blocks with working drawings to a small builder who came in started straight away and was out within about a year

 

I gotta admit, I was intentionally stirring the pot a bit with my question

 

Hahaha well played.

 

Wow, they look great @sanj , thanks for sharing.
How much would something like that cost to build?
Similar set up to this property, although fronts onto Guildford road.
273 Guildford Road Maylands WA 6051 - House for Sale #124693162 - realestate.com.au