Nollamara/Westminster/Balga Feasibility

Hi All, this is my first thread on the new propertychat! Thanks to all so far for sharing your wisdom, it has been a great learning curve for me.

So I have been doing a bit of research into these areas and mocking up my own feasibility calcs. I am not looking to invest/develop just yet but it's all part of the learning process.

I came across this one. http://www.realestate.com.au/property-house-wa-nollamara-119857713

To me, this one looks like it is way over priced? Unless I am missing something.

I'd love to see what figures you guys would throw at this one if you were to purchase & develop....doesn't seem to stack up to me! (But I would love to be proven wrong!)

Cheers, LG

 

Hi LG
Not surprised the figures don't stack up, been the case for some time in these areas. Many investors/developers have gone hard into these areas, due to the lower entry level, at the time (2012/13) there was great demand which pushed prices through the roof.

Regardless of the price today, personally, I would not touch any of these areas because there is an oversupply of villas, units, apartments. End values are relatively low, build costs remain the same. When you have so much stock on the market it only means one thing, prices will continue to fall, because investors who need to sell will have to drop their prices.

Nollamara was not making sense even at $550k, some time ago. Perhaps someone will be silly enough to buy as a long term land bank, there are far betters areas for land banking exercise.

Also with so much stock on the market it will effect rental income, I expect there is a fair bit of pain with this as well.

MTR

 

Thanks @MTR for the clear explanation. I will cross out these areas too

 

I have an interesting scenario & opportunity in Balga, which I expect would still allow us to make good $$.

Land: 924sqm, R40, DA Approved (8) 2x2x1 units = $625k incl. stamp duty
Total Development = 1.2m
sell units at below market price (current market value 315k-330k) : $300k
profit $575k under 8 months

 

Do you think you can construct the apartments at $150k each?

 

We

Yup, we have already achieved this with another 6 unit development so should not be any difference with these 8 units. This is with stone bench tops and double glazed windows. Just considering an extra 5k per units to do LED downlights, so maybe end up with $155k per unit.

 

Interesting. How are you building the apartments so cheap? Are you a builder?

 

@PhoenixRise - could I ask what is the construction cost including site works per sqm?

 

Just around $2,000 per sqm for construction, head works, and any remaining site works. The land priced at $600k comes with DA Approval for 8 units and has been cleared and raked, ready for building.

 

My business partner is the Builder so he gets his margin from building and supervising these jobs himself. I just work with our investors and we make these returns on the development side.

 

So is the $150k per apartment pure cost, or does that include builders margin as well?

I believe the only way to make profit in this Perth market at the moment is to minimise construction cost.

 

that includes builders margin, it helps that he's a good friend of mine - so low builders margin.

 

$2000 a sqm for apartments is very low no matter what method of construction is being used.

 

A few things missing in the feaso here, eg holding costs/bank fees, contingency, selling fees and gst, also I'd be surprised if u could start construction , complete it and then create the titles within 8 months.

Not trying to be a wet blanket btw, just an observation

 

Sanj

I think these are good points, and absolutely don't leave these out of the equation otherwise those profits will go south very quickly.

8 months completion time, a local builder on his own project (3 villas) full steam ahead completed these in 7 months, I believe 8 months would be nice but realistically can not see this happening, especially when Xmas holidays needs to be considered.

MTR

 

Keep in mind too we're talking 2 storey apartments which are naturally gonna take longer than single storey villas.

It's really important to have accurate and conservative feasos imo, otherwise at the end of the project you wonder where on earth your profit disappeared to.

At first glance this balga site looks tight I suspect around the 300k mark in profit. Admittedly I could be entirely wrong and haven't looked at it in detail

Phoenix does also have the advantage of the builder being a partner in the development so that certainly can help

 

Why did that last bit get bolded???

 

My builder that I'm intending to use was very honest with me, his cost is $1600 per sqm without the finishing cost he sells it at $2000/sqm again without finishing cost which is roughly $500 to $1000/sqm depending on finish, so to get a fixed price contract with finishing and a turned key outcome is very good value.

 

Your builder is making 25% margin in current market? A bit high! Is this for 2 storey double brick apartments?

 

@sanj yes conventional double brick. however i'm not using this system in my next build i'm heading down the ICF method. I have contacts where i can get a good price on concrete and reo to deliver some savings.