VIC Sunshine North - Re-development project analysis

Hi all,
What do you guys think about the possibility to knock down this property and build townhouses in there?
https://www.realestate.com.au/property-house-vic-sunshine+north-132388114

PROS: It faces the park, it's a RGZ zone, it's located at the end of a cul de sac and it's close to schools.
CONS: The area is not great, the closest train st. is not very close, the price seems quite high.

I'm learning at the moment so I'm pretty sure there are huge things that I'm missing but I'm doing my best to improve

(it would be great if anyone can please point out a post that is useful to understand what to consider or not for these sort of projects)

Ciao

 

First post. I am also learning, just want to share what I know

As far as I know, we need to do a feasibility study on the site. First I need the land value, then working out what are we building on the block, then construction cost, and there will be a series of cost (contingency, stamp duty, planning & building permit cost, agent & marketing cost.....etc). Lastly I will have to find some townhouse sales for bench-marking purpose.

Personally I don't think it is a good time for redevelopment (unless I am a big developer) under this environment because of the high development cost and the significant market uncertainty (by developing an allotment I would make sure the property market will go up after 1-2 years). But I am always happy to dig for more because I am working my way to become a valuer

1. Subject listed for $900k-950k, 724sqm land.

Next door sold for $805k on Aug 2019. about 100sqm smaller also a land value allotment.

79 Phoenix St sold for $850k in Dec 2019. similar size development site (busier street).

6 Ryan Ct sold for $908k in Nov 2019, similar size court location although not next to a park.

These sales are pretty dated. The latest sale within the area is 3 Phoenix St, Sold for $690k in July 2020. 600sqm land value allotment. a slightly inferior location.

And 4 Balcombe Road is under offer with an asking price range of $630k~690k



I think the allotment might be a little bit overpriced. But having an extra 100sqm might make the difference when it comes to council approval for townhouses, perhaps the difference between two townhouses or three townhouses. I might ring the planning department and ask about it.

The allotment is in an above average spot. close to amenities but in a good end of court location, next to a park (check private access to the park?) And a very good frontage compared to the surrounding properties. Will have the flexibility to build a side by side townhouse. Or a front and rear townhouses being advertised with exclusive private access to the park.

Although i am not sure whether it is good to be the opposite of a school's parking entrance. If I were you I might ask the neighbors/ agents how bad is the traffic during school hours.

We still need a planning permit and I didn't see a lot of two storey townhouses nearby. Being inside the RGZ is a plus, but objections from neighbors should be expected.




So I will assume the development is a pair of medium finished 4 bedrooms 180sqm side by side townhouses. Construction costs could be around $850k according to BMT.



Land+construction cost alone will be around $1.65M already ($900k+850k. Adding all the misc. cost that I have mentioned above it will be much more.

Some townhouses sales for reference:

2 Farnsworth Street
Sold $720k on Jun 2020
(Only a three bedrooms TH with smaller outdoor area)

12A Dendy Street
Sold $735k on Feb 2020
(again, three bedrooms TH)

10A High Street
Sold $907k on 11 Dec 2019
(better Sunshine location, four bedroom 2019 built)

30A Lynch Street
Sold $855k on Sep 2018
(Four bedrooms, dated transaction. ours are better if we have the similar finishing, but it seems that the market was slightly better back then)

If it's a four bedrooms TH as I assumed above, in the best scenario these could be sold for around $825k each it's on the market now.

So the income is around $1.65M and it is the construction cost+land. Perhaps three townhouses would make this deal more viable but I will still have a hard time making good returns for the money and time being spent.

I might miss out something because I didn't spend too much time on it. Correct me if I am wrong

 

wow that's a great analysis mate! I'm not directly interested on that property and I was considering it as sort of self assignment to build up my valuation skills (which, I now understand, are terrible but hey someone needs to starts somewhere :-D).
My understanding is that it doesn't make a lot of sense building apartments in a small block in a suburb like Sunshine (considering that the price difference between a townhouse and a apartment won't be that much) but I wonder what is the regulation that allows you to build apartments/units instead of townhouses. I'm sure is related to the size of the land (and also similar developments perhaps closeby) but do you know if there is there a generic rule that applies in Victoria of each council has their own?
What is the % return that you would seek in a development like this?
May I also ask you where did you get the estimate of the construction cost?

 

sorry for the late reply.

i got the estimate from BMT construction cost website
Construction Cost Calculator & App | BMT Tax Depreciation
People in the industry will normally use Rawlinsons Cost Guide.
These are not really accurate but at least give you an idea.
For more accurate figures I would reach out to a licensed quantity surveyor.

In terms of the generic rule, I don't think I am the right one to ask since I am not a planner and I haven't been doing a lot of development studies. The first thing comes in to my mind is what kind of objections I will face if I am developing this cul-de-sac allotment. Traffic, parking and overlooking will be my main concern. So if I am determined to do this I will have to draft a design response which tackles all these concerns. I will have to pay extra to the architects, hire a planning consultant or even hire a traffic engineer. Being the first within locality is always challenging.

I don't really think I am the right one to ask about what % of return people are seeking for. Because I am no expert on this.

But I personally think this is a good allotment if you are looking into 10+ years later. Being close to the main station of airport rail link and suburban rail loop is a great upside.

CBA: Collapsing immigration crushing property demand - MacroBusiness

Based on the above article I think the government will push more tradies into infrastructure construction industry as residential development are likely to trend down due to lower number of migration. It wouldn't surprise me if the airport rail link finish earlier than anticipated. By then I think Sunshine will be a good hub to boom.