I own a unit in a six pack on 1,000m2 in Sherwood, Brisbane. It's recently been rezoned medium density 5 storey and apartment blocks of 20 - 24 have sprung up all over the place. All of the developments were land banks then knocking one house down to build. My question to all the developers out there is would it ever make sense to knock down a six pack to build 20 or 24? Assuming $310,000 for each unit in the six pack and $450,000 for each in the new development? Is there a rule of thumb for land acquisition cost? Is it waiting for the underlying land to be potentially worth more than the units? Cheers!
1/3 of market value of the units ie: 20 units @$450/3 = Circa $3M vs 6 x $310 = $1.86M However as the market is at/near the peak, it would be sold into a falling market and be a very risky investment for a developer, if they could get finance & 10 OTP sales.
So the rule of thumb is it works if 1/3 of the value of the finished units is worth more than the total value of the original units? Do I have that right? The falling market has me weighing up selling now or holding for the long term until the market gets better. Keen to understand if in a stable or rising market a developer might want to buy us out or the value will increase.
If today's market is stable/rising and there's no prospect of changing economic conditions (consumer sentiment, interest rates, CPI, business confidence, AUD, balance of trade etc), then circa $3m is on the table but in a falling market that would be heavily discounted due to risks of not selling, not achieving budget, higher holding costs etc. You've gotta ask: has Brisbane boomed or is there more in the tank? If you talk to a few agents, is there genuine interest (considering the difficulty that many Chinese developers are having getting the funds to settle)?
Personally I wouldn't be thinking of it. Not just cos what the article says but its widely known that there is a massive unit oversupply. The risk to me is disproportionate to the possible returns. Townhouses are tricky enough to develop, let alone units. Southeast Queensland headed for property bloodbath, expert says
Even if it was feasible, the stumbling block will be getting ALL OWNERS to agree to sell at a fair price. At least one will most probably get stars in the eyes and hold out for far more than one unit is worth. There is talk of bringing in leglislation to force everyone to sell when over a certain percentage of owners in a block decide to sell. Marg
just because it is zoned doesn't mean you should do it. It should be what the market and demographics demands. for e.g. even if the whole of logan is rezoned to apartments - would anyone do it? as the cost to build outweights the end product value.
Thanks that's awesome info. Do the banks value the individual unit higher if there is development potential there? As in, does that potential get priced in to borrow against or as the value, or does it simply remain what an individual would pay for an individual unit?
Only if there is an application by all/majority of the owners requesting a valuation based on the development potential taking into account that 75% of owners have agreed to sell to a developer. Without agreement of the other owners, you only own 1/6 of the building as the development potential is a long way off.
