Land to Building Ratio - Brisbane

Hi All

I have been looking at houses in a few Brisbane suburbs and am surprised, by my rough calculations, as to the discrepancy between asking price and the cost to buy land in the suburb.

e.g., www.realestate.com.au/property-house-qld-moorooka-130203130

My desktop exercise has been to average the cost per m2 for land based upon the last 4-5 land sales in the area (mixture of desirable and less desirable streets, mix of battle-axe vs nicer properties etc).

The above property based on this formula has a land price of approx. $776K ($959 per m2; total land content 810m2). Assuming you can demolish and split. I've not investigated this particularly property for flooding etc but the discrepancy appears with many others I've found on property sites across Brisbane.

I know very little about property development but those on this site have previously quoted $50-$70K to demolish and split a simple (flat, no odd zoning or council requirements) property. That leaves about $100K less agents fees and transfer fees.

So what am I missing in all this? If it was that simple everyone would be making cash this way.

Thanks in advance for your advice all.

 

So let's look at what else could eat into that $100k

- GST on sale as you are creating new land
- tax (income or company tax) on the profit
- holding costs (no holding income so this can be substantial for the 6-12mths the project will take)

 

• Quality of finishes
• Inclusions
• Distance between the pupils of the buyer
• Efficiencies of different builders vs owner builders
• Latent conditions
• Length of the buyer's arms in relation to the depth of their pockets
• Solar orientation
• Proximity to amenities
• Distance from FHR in street

 

OK so a risky venture where lots can go wrong. Still to my eye land banking and *hopefully* increased land value over time/paying down holding costs and increasing personal equity would help create some wriggle room until you took the plunge?

Does however my general assessment of land to build ratio make sense or is there another measure people use when working out land value in tightly held areas to assess the ratio?

 

OK so lots can go wrong! In relation to valuing land in tightly held suburbs are there other ways people assess it?

 

There are always sales in a suburb, if it is tightly held choose a bigger suburb. Why does it appear to be tightly held (do people list and simply fail to sell)?

 

So then are you saying the rough desktop exercise I do is Ok to calc land value?

 

Rough as guts:
Step 1 - review sales prices (group for type/size of house, land size, age, orientation, level of maintenance etc)
Step 2 - calculate "cost to build new", deduct depreciation to get value of the improvements
Step 3 - assess other improvements - landscaping, paving, pools, garages, GF etc
Step 4 - deduct all improvements from sales price to establish $/m2 for land
Step 5 - rinse & repeat for the other sales
Step 6 - compare for better or worse than the site you are looking at.

 

I know that property and the location ,that is a high point and does not flood 750 mts towards Rocklea x Moorooka then it's a flood zone and 3-5 x 4k alone flood insurance ..

Plus that road from what I have been told from the car sales people that I know is a 6000 car plus per hour ,there is also another property for sale 300 mts on the same side inbound and lmr and floods ..imho..

 

What you're missing is step 1, an accurate BOE feasibility .

There's no profit. What do you think ( after all costs for land, stamp duty, demolition, subdivision and your estimate is off , sales, gst, holding costs, contingency, etc ,) you can sell each new lot for?

It's a really simple answer. There is no profit margin in the end.

 

Thanks all. So what you are saying is that there is NO profit in subdivision. I do find that hard to believe - can't be a house of cards everywhere.

Will look in more detail how to perform a more accurate land cost estimate.

 

There's no profit in the site you posted, doesn't mean ALL potential subdivisions in BCC is profitless.