WA: Development, title split, granny flat, and other general questions

I'm looking for a broad overview of development options in WA
A long response is not needed (although would be appreciated), but even if you have just some quick answers to these, it would be very helpful.


Granny flats
1. Are granny flats treated like Melbourne where they can not be rented out separately? Or more like Sydney/Logan-Qld where they can be?
2. Are there only certain locations that granny flats are allowed?
3. What are the restrictions? If it varies, can you give some examples - I am just looking for an overview.
4. Are houses with granny flats harder to sell or do they have a lower value or any other problems with demand for buying/selling?

Triple splitter blocks
Lets say a triple splitter block was found where zoning allows for it split into 3 separate titles.
And also assume the house is on one end so no need to knockdown.
5. Is there any problem with splitting and then building #2 and then planning but not actually building #3 for another couple of years?
One problem I am wondering about is - will the interest not be tax deductible on the third lot due to not being income producing for those years? And if so, could you initially split off say 1/3 (the original) and 2/3 (the rest), then build one just one side of the new title and then split it later when you want to build the 3rd so that the interest will be tax deductible during these years until it is built?
Any other problems?

6. What is some approximate price to build an average sized single story 3/2 house where they manage it all. Yes I'm aware the favourite answer here is "how long is a piece of string", but just some basic range estimates. From the little I have seen, it seems around 200-250?
7. Is it likely there would be some discount when building 2? Or if building 1 + a GF
8. In splitter blocks where the property is on the side and not needing knockdown, would it be correct to assume these houses are pretty much always very old (meaning depreciation would be very low)?

Edit: 8b. How much does splitting a title normally cost?

Finance
Lets say a property purchased for 500k with a 400k loan.
And you have a plan to build a house for 250k.
And lets say the price after putting the house is estimated to be 750k
9. What is the deal with the bank lending here? The value projection means you will have 250k more equity, so would the bank likely end up being able to loan you 70% of the projected 250k extra equity for this to use for building?
10. If you had equity in other properties and were able to extract 250k, would there be any problem in using this for development?
11. If unable to get a loan, and if you had 250k in cash, could you put that in a term deposit to borrow against (say 2 term deposits, one with 80% and one with 20%) and once the house is built, would the bank re-val the house as 250k more in value and be willing to lend 80% of the increased value to pay down 80% of the loan and allow you to get the money from the 80% term deposit back as cash that can again be used for non-investment purposes as before?

Thanks

 

GFs
1. They can be rented out separately as a result of an August 2013 statewide Rcode amendment.

2. There's a statewide policy on them, but some local councils also have their own rules on them. I can't think of any in Perth that ban them from being rented out completely though.

3. Can only be built on single house lots only (no common property), and generally only on 450sqm lots and above, and generally max size is 70sqm.

4. Harder to sell and lower LVRs. The usual problems with GFs and spending money on building one really - you never quite get good capital return on cost.

 

Answers in red

Granny flats
1. Are granny flats treated like Melbourne where they can not be rented out separately? Or more like Sydney/Logan-Qld where they can be?
2. Are there only certain locations that granny flats are allowed?
3. What are the restrictions? If it varies, can you give some examples - I am just looking for an overview.
For 1, 2 and 3 you want R-Codes and R-Codes explanatory
guidelines. Search "Ancillary dwellings" and "Aged or dependent persons’ dwellings" and "Single bedroom dwellings"

https://www.planning.wa.gov.au/dop_pub_pdf/State_Planning_Policy_3.1-Residential_Design_Codes-P.pdf

https://www.planning.wa.gov.au/dop_...odes-Explanatory_GuidelinesPrint_version2.pdf

Quick answers:

1. more like Sydney
2. yes, check the local planning scheme
3. lots must be at least 450m2 for ancillary dwellings plus a heap more

4. Are houses with granny flats harder to sell or do they have a lower value or any other problems with demand for buying/selling?

Don't know. You would have to contact some real estate agents for that one.

Triple splitter blocks
Lets say a triple splitter block was found where zoning allows for it split into 3 separate titles.
And also assume the house is on one end so no need to knockdown.
5. Is there any problem with splitting and then building #2 and then planning but not actually building #3 for another couple of years?

This is the exact project I am doing now. The front house has been renovated and retained. We are currently building unit #3 at the back of the lot. This configuration will remain in place for some time. Of note is that we have not subdivided the original lot at this stage.



One problem I am wondering about is - will the interest not be tax deductible on the third lot due to not being income producing for those years? And if so, could you initially split off say 1/3 (the original) and 2/3 (the rest), then build one just one side of the new title and then split it later when you want to build the 3rd so that the interest will be tax deductible during these years until it is built?

I can't advise on interest deductibility but you can definitely split then split again.

Your options are:
- Strata
- Survey strata
- Freehold

Development Control Policy 1.3 Strata Titles
Draft Development Control Policy 2.2 - Residential Subdivision


6. What is some approximate price to build an average sized single story 3/2 house where they manage it all. Yes I'm aware the favourite answer here is "how long is a piece of string", but just some basic range estimates. From the little I have seen, it seems around 200-250?

Depending on your level of finish the build could start from $180k to $200k

7. Is it likely there would be some discount when building 2? Or if building 1 + a GF

I have been told "no" by a builder

8. In splitter blocks where the property is on the side and not needing knockdown, would it be correct to assume these houses are pretty much always very old (meaning depreciation would be very low)?

Generally yes but not necessarily. If the house need renovating then there is some depreciation there.

Edit: 8b. How much does splitting a title normally cost?

Strata, Survey strata and Freehold have different costs. It also depends on the site and servicing. People budget $30k to $50k.

Finance
Lets say a property purchased for 500k with a 400k loan.
And you have a plan to build a house for 250k.
And lets say the price after putting the house is estimated to be 750k
9. What is the deal with the bank lending here? The value projection means you will have 250k more equity, so would the bank likely end up being able to loan you 70% of the projected 250k extra equity for this to use for building?

You would have to ask a mortgage broker than one.

10. If you had equity in other properties and were able to extract 250k, would there be any problem in using this for development?

Don't know. I am doing this and have not had any problems yet.

11. If unable to get a loan, and if you had 250k in cash, could you put that in a term deposit to borrow against (say 2 term deposits, one with 80% and one with 20%) and once the house is built, would the bank re-val the house as 250k more in value and be willing to lend 80% of the increased value to pay down 80% of the loan and allow you to get the money from the 80% term deposit back as cash that can again be used for non-investment purposes as before?

You can but that doesn't mean you should.

 

I haven't really paid attention to them. There is a bad example here:

26 Fulman Way Lynwood WA 6147 - House for Sale #126266534 - realestate.com.au

and a good? example here:

10 Godin Court Churchlands WA 6018 - House for Sale #125941262 - realestate.com.au

 

Thanks a lot for the responses.

@Perthguy
- So you built number #2 and only after completing that you went to start on #3?
- Were you able to tenant it before starting #3?
- I didn't realise you could build without splitting. Is anything needed to build without splitting yet but planning to split later? Any council approval or other legal requirements?
- does the 30-50k budget to split need to be doubled to split it into 3 instead of splitting into 2?
- Is there any reason you used equity pulled to build instead of a new loan so that you could use equity for something else? or is it just easier to use equity since it was available and no need to ask for another loan? To build both of them, you need around 400k equity which is quite a lot, although if you built one, then you likely could pull equity again for the next one using the new higher value of the properties, and this is what I am thinking also - so that I would not need 400k equity available.

If you dont mind me asking, could you tell me the suburb and sqm of the total land?

Thanks again for your response.

 

I'll put my comments in below - but I've taken off the quotes so I hope you don't get lost


I'm looking for a broad overview of development options in WA
A long response is not needed (although would be appreciated), but even if you have just some quick answers to these, it would be very helpful.


Granny flats
1. Are granny flats treated like Melbourne where they can not be rented out separately? Or more like Sydney/Logan-Qld where they can be?
Westminster: you can rent it out to unrelated people - like Sydney
2. Are there only certain locations that granny flats are allowed?
Westminster: not that I know of, it's pretty much all of Perth metro area as far as I know
3. What are the restrictions? If it varies, can you give some examples - I am just looking for an overview.
Westminster: standard restrictions are that it needs to be on a 450sqm or greater block, GF is no larger than 70sqm of internal living are (aka plot ratio), you can have 2 bedrooms as long as you stay within 70sqm. There is other stuff. Read the Ancillary Dwellings part of the WA Residential Design Codes
4. Are houses with granny flats harder to sell or do they have a lower value or any other problems with demand for buying/selling?
Westminster: the pool of people wanting to buy houses with granny flats is less but a well located one and one that is well built/attractive and even better with own frontage would do well.

Triple splitter blocks
Lets say a triple splitter block was found where zoning allows for it split into 3 separate titles.
And also assume the house is on one end so no need to knockdown.
5. Is there any problem with splitting and then building #2 and then planning but not actually building #3 for another couple of years?
Westminster: it would take very careful planning but not impossible. You'd basically just need to leave the required space for the to be developed block and only put the DA in for one. If you are splitting before building (called green title or survey strata here ) then it's very easy to do. If you are splitting after (called Built Strata) then you still need to leave the space but you would leave existing and #2 on same title (ie not split) until you have built #3 I would think. This is much more complex and not as bank friendly as you have your dwellings "in one line" or basically on one title which is harder for bank to sell if needed and they will value less. The other option is to split into 2 then split lot #2 into 2 again later.
One problem I am wondering about is - will the interest not be tax deductible on the third lot due to not being income producing for those years? And if so, could you initially split off say 1/3 (the original) and 2/3 (the rest), then build one just one side of the new title and then split it later when you want to build the 3rd so that the interest will be tax deductible during these years until it is built?
Westminster: I'm not an accountant but deductability goes to intent and if you intend to build #3 then I think it's deductable. Talk to a real accountant though
Any other problems?

6. What is some approximate price to build an average sized single story 3/2 house where they manage it all. Yes I'm aware the favourite answer here is "how long is a piece of string", but just some basic range estimates. From the little I have seen, it seems around 200-250?
Westminster: turnkey 3 x 2 around 150sqm would be around $225k for an average type area.
7. Is it likely there would be some discount when building 2? Or if building 1 + a GF
Westminster: a small amount but that is factored into the price that anyone will give you.
8. In splitter blocks where the property is on the side and not needing knockdown, would it be correct to assume these houses are pretty much always very old (meaning depreciation would be very low)?
Westminster: not necessarily. Perth has plenty of subdividable areas with houses built in the 80s/90s that may have had some renovation/repairs and new appliances put in.

Edit: 8b. How much does splitting a title normally cost?
Westminster: creating one additional block with survey strata will cost around $20-30k

Finance
Lets say a property purchased for 500k with a 400k loan.
And you have a plan to build a house for 250k.
And lets say the price after putting the house is estimated to be 750k
9. What is the deal with the bank lending here? The value projection means you will have 250k more equity, so would the bank likely end up being able to loan you 70% of the projected 250k extra equity for this to use for building?
Westminster: I don't understand your sums but I'm still on my first coffee. But it pretty much doesn't work that way. There are 2 ways
a. buy site with LVR80 (400k loan on 500k site) and subdivide off a block. New block is worth $150k, existing house on smaller block is worth $400k. You might be able to use equity in new block to help with construction loan deposit - it depends on how the sums pan out but generally you are not borrowing on end values you need to stump up 10-20% of the construction loan
10. If you had equity in other properties and were able to extract 250k, would there be any problem in using this for development?
Westminster: providing you did it carefully and quarantined only for this project and got your accountants blessing then go for it
11. If unable to get a loan, and if you had 250k in cash, could you put that in a term deposit to borrow against (say 2 term deposits, one with 80% and one with 20%) and once the house is built, would the bank re-val the house as 250k more in value and be willing to lend 80% of the increased value to pay down 80% of the loan and allow you to get the money from the 80% term deposit back as cash that can again be used for non-investment purposes as before?
Westminster: I need WAY more coffee to understand that. Talk to your broker and accountant. Sounds messy and not right to me

Thanks

 

Thanks a lot @Westminster!

Couple of quick follow up questions.


Splitting a triplex block:

- It sounds like you can build without splitting - is anything required (council approval or anything else) before building without splitting?
- Lets say I built #2 (middle house) first and intentionally placed it to put a third. Then would it help to split it into [#1] [#2 #3] (where #3 is not built yet) such that it is 2 separate titles each with one house (but with one on say 350sq and the other on 700sq). At this point the banks could maybe just split it into 2 loans and I could hopefully pull out the added equity in the 2 properties and that equity could be used to build #3 and then split it?

Depreciation:
- If there would be a property built in the 90's and is on one end, that would be awesome for improving cash flow (which is a big goal of this idea). Are very rare? I guess any property where the house is far on one side with space for 2 more without knocking down the original is already very rate.
- I might understand this wrong, but wasn't the May update to depreciation meaning that renovation that someone else did can not be claimed any more, only depreciation on the building?

Finance:
I am a bit confused here. You said I need to stump up 10-20% of the construction loan, but also said I can not borrow on end values. How would they lend if you can not borrow on end value estimates?

 

Hi @Anthony Brew

ok. You can build without splitting. They are 2 different things here in WA
- survey or green strata (this is like Torrens) and is done before building
- built strata and this is splitting after (immediately after or anytime you want after)

With built strata you apply to the council for your development approval and give your proposed strata boundaries to them. They will approve the design from a Rcodes design point. Once you have DA you apply for Building Permit then build. At the end you can choose to leave the 2 dwellings on the one title or complete the strata subdivision. It would take care and consideration to use this for a staged subdivision

With the construction loan it is valued against the cost of the construction contract. The banks want to see good value for their investment. If you are going to build a one bedroom house and it costs $400k to build they may baulk and refuse to lend you much against that $400k. They know from past loans how much it costs to build and what is good value.

 

Thanks @Westminster

So if you went for a more 'normal' construction loan like 200k for a 3bd house, and if nothing particularly out of the ordinary with the lot, generally a 70% loan is common/standard?

 

With depreciation - I don't know enough about this to comment on the changes made this year and how they effect your scenario.

Most retain and builds in Perth would be existing house at front and new houses 2 and 3 are built behind it via a driveway down the side. Rarely would you be able to find something with the ability to have them all side by side unless it's a corner block.

 

80% would be doable in my experience

 

Just to add to what @Westminster has written... to build before splitting you need development approval from council for grouped dwellings. From memory, mine was something like two grouped dwellings (one additional).

You can then build. After building you can subdivide either survey strata or strata. I have seen both done.