Land to Building Ratio - Brisbane

Discussion in 'Investment Strategy' started by Yellowfin1, 12th Feb, 2019.

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  1. Yellowfin1

    Yellowfin1 Active Member

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    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.
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    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)
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    • 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
     
    KateSydney and Blueskies like this.
  4. Yellowfin1

    Yellowfin1 Active Member

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    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?
     
  5. Yellowfin1

    Yellowfin1 Active Member

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    OK so lots can go wrong! In relation to valuing land in tightly held suburbs are there other ways people assess it?
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    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)?
     
  7. Yellowfin1

    Yellowfin1 Active Member

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    So then are you saying the rough desktop exercise I do is Ok to calc land value?
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    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.
     
  9. willair

    willair Well-Known Member Premium Member

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    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..
     
  10. Sackie

    Sackie Well-Known Member Premium Member

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    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.
     
    Last edited: 13th Feb, 2019
  11. Yellowfin1

    Yellowfin1 Active Member

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    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.
     
  12. Sackie

    Sackie Well-Known Member Premium Member

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