Perth - development sites

I am finding that smaller development - 3 units triplexes - are not working out in today's prices. There are not comparable sales data for end products at high prices whereas sites have already increased.

Is anyone else having same issue ?

 

Were they generally working out for you before recent times? I wouldn't have said so.

 

Yes, they were working out before, i checked few suburbs like Willagee, Woodvale, kingsley and they were fine for 15% profit on Total Development Cost after paying margin scheme GST. Not anymore. Also, most of the times, not able to know that site was on even market.

 

I'm a Victorian who purchased an infill site in Bassendean in 2018. I looked at subdivided Lots and found costs to build on land behind an original house just wouldn't stack up. I purchased a Lot with street frontage but paid 30% more to get it and build a house there.
I only build a stand alone house on a piece of land which has historically born out as the most profitable. Australia wide buyers are looking for this type of home purchase as they move out of central city locations and into regional area. As Victorian I found Perth focussed on subdividing its land into the smallest lot size possible and with virtually zero outside space. It works well for renters however they eventually move out to larger pastures. This is happening now.
It's hard to find value in Perth other than the fact that's its the cheapest Aussie capital city by comparison. Its like the market has been in the doldrums for so long that their minds are still at paying yesterday's prices today, but at last the rents are rising but only towards what other capital cities have paid for years. I'm going to rent mine for income because no matter what people in WA think about rising prices there as a problem p, it's only just starting.
For you on purchasing a development site which you think is expensive, ask your self what the price might be by the end of the year or 12 months after that. The spreadsheet won't give you that answer.

 

That's a pretty poor way to do a feasibility though.

 

Yes, i agree. It works if you want to buy and hold for next 1-2 years but does not if u want to build immediately.

But I think in rising market, thats the only way. As i mentioned at start of thread that end product value( for e.g. 3×2 villas) have not risen much but sites have increased. This end product value has not risen as there is not enough sales for valuation of comparable product at higher value as they are still being built. So u have to rely on odd transanctions which are not direct comparison.

 

What class of house building is rising in the Perth area and in which location?

 

I wasn't implying I was offering a feasibility study. I was suggesting that there are other factors that need to be considered. Perth market is starting to rise and land is the first asset that sees an increase. Its like the stockmarket. Participants pay the price of a stock based on the future value of the company. ie what expected to happen at the company. The r/e market is much slower. Land prices increasing reflect a demand caused by increased confidence in the market. Low interest rates, government stimulus and increased growth of the population. All of these are present in Australia including Perth so if you work out where the smart money is going then you go there. Does the market show that smart money is going into building Unit developments? Are development sites selling anywhere? If yes, follow the trail, if no, its not the place to be.

 

I don't really agree at all. What you're suggesting just sounds like pure speculation.

Personally I buy development sites based on proper feasibilities on current values. Otherwise it just seems like punting - and a risky one at that. No thanks.

 

I have now validated my observation with one of the prominent BA. He says that since there is not much stock in market for end product based on increased site value, market is playing catch up for end value price. As per him, maximum margin after all costs, he can find is 12 to 13% only and that too not many sites. This is for small scale development like triplexes.

 

It is extremely hard to find "vanilla" sites that stack up currently. The competition levels are fierce and people are relying on growth to make profit which is very dangerous.
Add to the fact that there has been so little construction in the past few years and it's very hard to find comparables. I am often having to go back a few years then adjust based on current market which isn't the best but is sometimes all you can do.

 

You are spot on, WM. Until new stocks come on market, its difficult to find comparables. This new stocka will slowly start coming into market in later half of 2021. So i guess it will be easier to find comparables then.

 

I must be the only one thats always finding stock.
First quarter of 2020 I probably found between 5-10 amazing sites that stacked up pretty well (wouldn't consider <30%). Due to financial constraints was able to purchase 1.

Whats your budget on purchasing - this is probably whats causing issues as you want to go as high as possible here. Lower end suburbs will have lower/longer to sell end products.

As @Westminster said you need to be switched on and pick things other cant find. Eg possible to do 3/4 when its advertised as a duplex block.

Im also notsure how good BA's are when it comes to purchasing development stock. There is a risk that needs to be pushed. Im not sure if they are willing to show these sites or more give a sure thing as at the end of the day they have liabilities

 

First quarter of 2020 was diffefent market. Did u try recently ? Market has moved so much after that. Buf fully agree with your comment on BA, pushing risk and requring skills.

 

I am not skilled one in finding development sites thats for sure. I am looking for 500k to 650k range for site. Looking to do triplex single storey.

 

Sorry meant first quarter of 2021 (not 2020). (Settling on one soon)

500-650k is low for triplex. These would be in suburbs where end products got for go for 4-500k historically. Moving forward I wouldn't be surprised if this value jumps 10%.

If its strictly triplex development in that budget in WA I would be looking at selling them as land only or speaking with builder and having it marketed as a h+l package. Profit isnt as much but due to the resources put in and time it takes you would be happy with a lower profit amount.

Heres an example of one that recently sold - https://www.realestate.com.au/property-house-wa-yokine-135355486

Sold for 850k. Agent said 2 lot but would have actually been able to 3 lot.

Would have expected sale of each 260m2 lot for 400k (though my hunch says by the time it was ready for market mid-high 4s will be market value)
House across the roundabout sold for about 1 mil on a 360m2 (would be possible to achieve close to that for the right house)

 

Agree - Thats where skill comes in - identifying something valuable which most others cant.

 

Wouldn’t it be quite difficult to start the building process now though, even if you found a site?

 

Not sure if anyone is looking at Coobellup, this area was very much under market value, I doubt this will last with what we are seeing in Perth today

plenty of development sites, not sure how they stack up



https://m.realestate.com.au/property-house-wa-coolbellup-136018690

 

I never explored that area but i vaguely remember someone mentioned on this forum that it may have some soil issues.