Join Australia's most dynamic and respected property investment community

Rules of thumb for putting a value on a DA-approved site?

Discussion in 'Development' started by wombat777, 3rd Jun, 2016.

  1. wombat777

    wombat777 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,449
    Location:
    33°41'24.7"S 150°55'34.3"E
    What are the general rules of thumb used in putting a value on DA-approved site?

    I guess the rules of thumb would differ for subdivisions and multi-dwelling/plexes/unit-blocks, but how is value of the site with the approved DA actually established?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,579
    Location:
    Sydney or NSW or Australia
    Does the DA add value? Was it hard to achieve eg multiple dwellings on otherwise single density block?
     
  3. wombat777

    wombat777 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,449
    Location:
    33°41'24.7"S 150°55'34.3"E
    To clarify, this is intended to be a general discussion on how to calculate end-value of having a DA drawn up.

    In this instance the site is narrow so there would be planning / approval complexity in achieving a DA ( for some form of multi-dwelling or low-rise unit block ).

    I guess, partly answering my question it reduces development/planning risk for a buyer as well as reducing their holding costs prior to construction. How do you put a value on the risk reduction?

    The DA also increases interest/competition in a site to developers by showing the potential.

    So how can you estimate all this 'value' the DA brings to a site?
     
  4. Jezzalinko

    Jezzalinko Member

    Joined:
    6th Aug, 2015
    Posts:
    14
    Location:
    Southern Hemisphere
    I guess it's just up to the seller to determine any potential value they have added, how much they have they de-risked the project and the cost saving by shortening the project timeframe for the buyer. The big one thats stands out for buying DA approved sites is figuring out why they are selling.
     
  5. Jezzalinko

    Jezzalinko Member

    Joined:
    6th Aug, 2015
    Posts:
    14
    Location:
    Southern Hemisphere
    Just seen you're reply after I posted, i'd work out the end project value and work back. Where is most of the risk?
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,579
    Location:
    Sydney or NSW or Australia
    It comes down to how difficult it is/was to achieve the DA eg if a block of land has an FSR of 1.5:1 over 1000m2 (20 x 50m) and height restrictions of 8m, boundary setbacks of 3m down either side and 7m front/back. Building footprint is a maximum of 14 x 36m = 504 m2 so 1500m2+/- is quite achievable .

    A DA which conforms to the above adds minimal value as the result is easily achieved, ticks all the compliance boxes etc but saves the purchaser time and reduces risk ie known quantity.

    Whereas a DA which achieves 10-15% more floorspace by utilising the land contours to fit the building envelope will also achieve a higher sales price as there's an additional 150+ m2 floorspace (could be 2 additional units). The second DA raises the bar but increases the yield.
     
    Leo2413 and Jezzalinko like this.
  7. LifesGood

    LifesGood Home Building & Development Consultant Business Member

    Joined:
    26th Jun, 2015
    Posts:
    646
    Location:
    Perth WA
    $47.60
     
  8. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Yes, that is how you work out whether it is a viable project to develop or sell as a DA, no one is going to buy an approved DA if it does not make money, I think a minimum would be 20% profit for the buyer.

    As far as finding out what it is worth its very much dependent on market value in the area, the project/number of units on the site. If there are lots of developments in the specific area its not going to be hard to work out the value, any decent re agent can give a range. If stock is tight it will be easier to achieve a higher price as developers/builders can not source land and also this may save them 6-12 months in time.
     
  9. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    Its all about $, cost vs end value, design and demand.
    Comparable sales

    PC member just sold a DA approved site in Melbourne today (unconditional), and has made a cool $500,000 profit in a 9 month time frame.

    This was a 4 townhouse development DA in built up area where development sites are scarce and also difficult to get approved, tough council to deal with. The designs were excellent and what is desirable in this market.

    The buyer will be making around 20%+ profit on this deal, which makes it a very attractive proposition, no one in their right mind will buy a DA unless they can make money.

    I am sure further details about the deal will be posted down the track

    At the end of it comes down to research, knowing your product, what buyers want in the area, the demand, working out the numbers build costs and expected profits

    MTR
     
    Last edited: 4th Jun, 2016
    superace likes this.
  10. wombat777

    wombat777 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,449
    Location:
    33°41'24.7"S 150°55'34.3"E
  11. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,181
    Location:
    Melbourne
    In regards to the 20% profit. Do you work it off what a builders cost would be?
     
  12. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    no, market rate, as it may not be a builder buying.
    I am well aware builders margins will be greater than my margins.
     
    Barny likes this.
  13. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,181
    Location:
    Melbourne
    Thanks mtr, now the market rate can vary on price per square metre to build. An example might be 12-15k per square metre build.
    Just as an example, if your building 4 townhouses which are 14sq each, totalling 56sq. Then what would you base it off to be able to work backwards with your costs to work that 20% out? Do you work of a median or worst case build figures?
    56x12k=672
    56x13k=728
    56x14k=784
    56x15k=840
     
  14. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,579
    Location:
    Sydney or NSW or Australia
    Work back from end market value.

    In a nutshell (or rough as guts)

    Site value = (EMV - 20%) - build cost - (SD, Legals).
     
    Leo2413 and wombat777 like this.
  15. alexm

    alexm Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    305
    Location:
    Sydney
    Congratulations to that PC member. That's a great result. I was chatting to that person just the other week about this.
     
  16. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA

    based on specification and suburb would determine this
    I in the main stick to bread and butter areas, median $500k
    whether double storey or single
     
  17. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA

    Alex
    I think that person will have a sore head tomorrow:)
     
    alexm likes this.
  18. LifesGood

    LifesGood Home Building & Development Consultant Business Member

    Joined:
    26th Jun, 2015
    Posts:
    646
    Location:
    Perth WA
    Wow, that's amazing. Skill, luck, or a combination of both?
     
  19. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,478
    Location:
    Perth, Melbourne, USA
    I would say both
    buying in rising market where adjoining Bay areas much higher end values
     
    LifesGood likes this.
  20. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

    Joined:
    14th Jun, 2015
    Posts:
    2,112
    Location:
    Sydney & Adelaide
    Add a million then post about it on facebook?