Is it Cheaper To Build Second Dwelling and Then Subdivide?

Hi folks,

I am about to embark on my first subdivision, in the City of Casey, Melbourne. There is an existing property at the front of block (650sq m) and I am looking to build at the back.

My mortgage broker tells me that most developers build the additional dwelling first and then subdivide as it works out cheaper? I have no idea why and how much could expected to be saved.

I will ask my broker for more information but any advice in the meantime on whether it is cheaper to build the second dwelling first and then subdivide would be very much appreciated. Many thanks in advance.

 

Maybe it's a staging/finance thing?
But usually it's better to subdivide first, if you can create a block that doesn't need a planning permit to later build on (usual +300sqm, but may depend on the planning controls).
If you can do this, you don't need development plans/drawings for the new house - it's a straight subdivision. Also eliminates (almost completely_ the possibility of objections - hard to object to a subdivision, easy to object to a proposed building.
Usually much faster as well.
By subdividing, you value add to the property immediately, without any building.
In my experience people subdivide first if they can, and then avoid dealing with planners later. But it will depend a little on planning controls

 

Very simplistically:

Build first: rental income sooner = Lower holding costs. Especially if you plan to retain both dwellings (and therefore don't actually need the two separate titles anytime soon).

Subdivide first: increase value of asset quickest = able to refinance/draw out equity to fund construction.

In my experience (in WA) there are more ppl who are able to do the latter (as it requires less equity/cash to start) but greater profits in the latter (start generating a rental return sooner).

Also tax implications (esp if it is your PPOR) and other things you will have to consider (what titles do you want at the end?)

 

It really depends on the council, some Melbourne councils will charge you a 'services' or 'utilities' fee when you subdivide that can be over $50,000. I would talk to a town planner who knows the area and get the actual numbers to see how the two options stack up.

Do you have an investment savvy mortgage broker? They may be biased to receive their commission earlier.

 

+1
I would not do it any other way.

 

Once you create two blocks you'll need to refinance, pay 2 sets of rates, install services prior to subdivision registration, 2 lots of insurances.

On a pv basis it's easier to defer these costs until the end.

 

Interestingly in WA my rates went up when I built the second dwelling, not when I subdivided (then they just split in two).

Also services have to be installed prior to building (which may happen even sooner than a subdivision approval timeline) so you may not always be deferring costs there.

Check out the details for your area for the various points ppl have mentioned above.

 

Watch out for split zoning rules of various councils. Sometimes they will determine the order. For example, my block in City of Belmont is R20/40. To get to R40, I have to demolish the existing dwelling. For a retain and build, I can only subdivide to R30. So subdivide first then build is not feasible for that scenario. However, I can build first and then strata. It doesn't make a lot of sense but the rules are the rules

 

Thanks so much for the replies, some food for thought. I will chat with my local council and local land surveyor.

 

FYI - This isn't relevant in Victoria

 

Talk to a planner, unless your surveyor is experienced in development as well as subdivision

 

For me on it came down to valuations. Getting valuations to work with the amount I needed to borrow without putting cash in myself for the build. Splitting the block first then valued as 2 houses on seperate titles came up better then 2 houses on the same title.

 

Did you mean to have a former as well?
Or both as the latter?

 

Ahaha yes, thanks @Azazel , I meant: my experience (in WA) there are more ppl who are able to do the LATTER (as it requires less equity/cash to start) but greater profits in the FORMER (start generating a rental return sooner).

 

I dont know about Melbourne but in Sydney it is easier to get approvals when built prior to subdivided (dual occupancy). Main reason is councils want a design that appropriate for the land.

 

It's the opposite in Victoria (if the blocks are more than 300 sqm in area)

 

No worries.
I know what you meant, just didn't know which way.