Brutal Art Design + Build ~ award winning property development firm

Brutal Art   Design

Home renovation and building (Photo courtersy: Brutal Art Design + Build)

Property development is fraught will all sorts of risk for the average property developer with limited experience. Many first time owners who is looking to build their dream home may be wise to consider seeking professional assistance and advice to minimise the potential risks of making costly mistakes and wasting valuable time which may prove disastrous if not managed effectively.

Brutal Art Design + Build or BAD + B is a multiple HIA award winning design and property development firm based in Melbourne which helps property investors to build and develop real estate.

Their professional services include helping home owners prepare applications for subdivision of land. In addition, BAD + B also provide the following services:

1. Feasibility studies and early assessment of development potential of a particular site

2. Obtaining early feedback from council – Developing Land Use Plans

3. Establishing a concept design

4. Obtaining a planning permit

5. Assemble a Building Permit Documentation Package

6. Manage the entire building process

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How to obtain approval for a Development Application

The process of obtaining approval for a Development Application (DA) can be a daunting task as it involves dealing with the bureaucratic maze of councils and other authorities such as the Office and local utility companies. The terminology itself may be confusing as each state and territory in Australia has its own planning laws. Every council, whilst generally have similar responsibilities and regulations, has its own processes for assessing applications and granting approvals.

The difference in terminology between New South Wales and Victoria is set out below:

Type of Document / Approval NSW Victoria
Application to construct new dwellings, demolition of old dwelling, subdivisions and change of use of dwellings. Development Application Planning Application
Statement that a particular use of development (subdivision, buildings and works) may proceed on a specific piece of land. A DA or permit may be specific to a person or operator and is always subject to a time limit and expires under specified circumstances. The responsible authority may impose conditions when granting a DA or Planning Permit. Development Approval Planning Permit
Document which signify that a registered building surveyor has approved documentation for the proposed building work prior to commencement. The Building Act 1993 and Building Regulations 2006 legislate that most building work is subject to the issuing of this document and includes renovations, demolitions and removals. This process is to regulate the standard of construction required to meet all local building code regulations. Construction Certificate Building Permit
Document stating how the land is zoned and is usually required for the purchase and sale of properties. Planning certificate Planning certificate

It is important to not confuse planning permits with building permits. Building permits relate to the methods and standard of construction of a building whilst planning permits relate more to factors such as appearance and impact on the environment, streetscape and neighbours.

An overview of the process for obtaining approval for a Development Application or  Planning Application is set out below:

Step 1- Pre-application tasks

  • Discuss proposed plans with council planner
  • Establish views of neighbours
  • Consider seeking advice of professionals – architect, town planner or project manager. One such firm which offers property development advice and management services is Brutal Art + Design. This company consists of professional builders, architects and designers which can assist property owners with conducting site assessment and dealing with council regulations and approval.

Step – Submit Development / Planning Application

  • Lodge application, building plans and all relevant supplementary documents with council
  • Written notification from council of receipt of fees and application and planning officer assigned

Step – Council review of Application

  • Planning officer makes preliminary assessment, checks plans against town planning regulations
  • Formal request for more info, modifications to design
  • Consultation with other local authorities eg utilities

Step 4 – Advertisement of proposed development

  • Advertisement signage on site for at least 14 days
  • Written notice to neighbours and hearing of parties who may object to proposed development

Step 5 – Council assessment of Application

  • Review any objections and orchestrate mediation
  • Review planning scheme provisions
  • Discuss and negotiate findings with applicant

Step 6 – Council decision

a) Approval with conditions

b) Decision with conditions

c) Rejection

To obtain a Planning Permit in the state of Victoria, it is essential that building plans comply to Rescode, which is Victoria’s residential design and building code. Some key elements of the code include the following:

  • Preserving the neighbourhood character is the starting point for all permits.
  • Dwellings must not overlook or overshadow neighbours.
  • Environmental standards must be met to maximise sunlight.
  • Maximum height of new houses reduced from 12 to 9 metres.
  • Front fences are not permitted to be more than 1.5 metres.
  • Councils may prevent removal of trees.
  • Planning applications must include site analysis.

A checklist of Rescode requirements include, among other things, the following common requirements to be satisfied by any proposed building plans:

Regulation Item Requirement
408 & 409 Street setback Max: 1/3 of allotment depth
Min: Lesser of 9 metres or average of adjoining properties
410 Building height Max: 9 metres
411 Site coverage Max: 60%
412 Permeability Min: 20% permeable area
413 Parking Min: 2 car spaces with minimum sizes (in metres) of ‘6 x 3.5’ & ‘4.9 x 2.6’. However combined width can be reduced to 5.5
414 Side/rear setbacks Max: Up to 3.6 metres on boundary, 1 metre + 300mm/metre over 3.6 metres, or 2 metres + 1metre/metre over 6.9 metres
415 Boundary walls Max: 3.6 metres high with average of 3 metres
Max: 10 metres + 25% of remaining boundary length
416 Existing windows Min: For walls over 3 metres a setback of half the wall height from the window (otherwise 1 metre), with a 3 m2 light courts provided to the window
417 Existing north windows (within 3m) Min: 1 metre + 600mm/metre over 3.6 metres, or 3 metres + 1 metre/metre over 6.9 metres
418 Overshadowing Cannot shadow minimum recreational open space to adjacent properties (including shadows from other buildings), where minimum recreational open space 40 m2 with minimum 3 metre dimension (or 75% of open space if lesser) and usually secluded
419 Overlooking No overlooking of secluded open space or habitable windows within 9 metres, (taken at height of 1.7 metres and 45 degrees from edge of windows)
420 New windows Min: 3 m2 light courts with min 1 metre dimension
421 Open space Min: Lesser of 80 m2 or 20% with minimum secluded open space of 25 m2 with minimum 3 metres at side or rear
424 & 427 Front fences Max: 1.2 metres if within 9 metres of street intersection, else 1.5 metres and 2 metres for declared roads
425 Side / rear fences Max: 2 metres. Note for fences exceeding 2 metres see regulations 4.26 to 4.30 that have similar Rescode requirements to those relating to buildings as above.

Rescode came into force in August 2001 and applies to all residential development in the state of Victoria.

2-4-4 property development rule

Property development

Property development can be a risky business, especially if one is not familiar with issues such as subdivision, the process of liaising with council, utilities and relevant authorities to obtain building approval, managing builders, architects, applying for finance / development loans, obtaining accurate cost estimates, timing the market, building the right products for the right location and the list goes on.

Some investors take to property development because they feel that it may be “cheaper” than buying a property by paying retail price. Through small renovations, extensions and building new dwellings, they can “manufacture” new equity through the profit margins of the new development and hence, pay wholesale price. This thinking is logical provided the entire spectrum of property development principles are successfully carried out to minimise the risk involved.

Ron Forlee

Book by Ron Forlee

One simple rule that I follow is the 2-4-4 property development rule. I withered down extensive research on articles and books about successful property development, attending seminars by respected property investors such as among others, Michael Yardney, Steve McKnight and Ian Hosking Richards who have had decades of personal experience and have built up multi-million dollar property portfolios and successful property related businesses. One particular book that I would recommend is An Intelligent Guide to Australian Residential Property Development by Ron Forlee.

Importantly, I have also spoken and had in depth discussions with architects, builders, surveyors and project managers who are experienced in the specific location that I choose to develop and also have relevant contacts with planning officers in those local councils. By educating myself and getting into the details whilst maintaining a sense of the big picture, that is the end result of the successful development, I am able to minimise and alleviate substantial risks involved by applying this simple 2-4-4 property development rule.

My simple 2-4-4 property development rule says that in order to be successful, I must always keep strict control of the 3 largest elements of a project – profit margin, site / land cost and building cost in the proportion of 20%, 40% and 40% respectively. This rule always ensures that I should walk away from a potential development if it is not met.

A profit margin of 20% allows me some buffer for unforseen circumstances such as a sudden change in market conditions, new rulings or factors which are purely beyond my control. In such situations, this 20% margin still allows a fair return and minimise the risk of losing money. Depending on the location, the cost of the development site should be no more than 40% of the project’s completed sale value. Therefore, if the completed sale value of your project is $1 million, then the cost of the development site must not exceed $400,000, and likewise with the building cost.

Reed Construction Data has an excellent building cost calculator which can be used to calculate an approximate per square metre building costs.

This 2-4-4 property development rule is simple but can prove difficult to follow and implement. If implemented successfully, then risks are substantially minimised and margins better assured.

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Recent sale of potential development sites in Melton

According to local agent Lorraine Johns of Stockdale & Leggo in Melton, properties with the potential for development such as dual occupancy have been snapped up the moment they were on the market. This could be due to investors or local builders responding to a steady increase in demand for housing in the area. Here are a few recent sale of potential development sites:

1. 4 Braewood Place, Melton West

This property consists of 3 bedrooms, 2 bathroom with 4 car spaces and is situated on a 1,000 sqm block in Melton West. It is currently under contract for $282,500.

2. 91 Kurunjang Drive, Kurunjang

This property has 3 bedrooms, 2 bathrooms and 2 car spaces. It has a timber kitchen, blackwood flooring, ducted heating, 3 split unit systems on approximately 800 sqm of land. It is currently under contract for $269,000.

3. 11 Kimburra Court, Melton

This property has 3 bedrooms,  2 bathrooms and 4 car spaces. Located in a quite street, it has an ensuite with double shower, gas heating, air-conditioning and sunroom. It is situated on a 780 sqm block and is currently under contract for $262,500.

Other related posts on Melton:

How to find a property development site

New land release off Exford Road, Melton South @ wealthruproperty.com

 

Here are some key issues when searching for a development site to build your house:

 

1. Research

It is important to determine and decide in the first instance whether your intended development is to be your principal place of residence or as an investment to either hold for the long term, on-sell upon completion or at a later date. Developing a property with the intention of owner occupier as opposed to it being an investment property has obvious tax implications.

As a general guide, I tend to look for development sites which have the following criteria:

 

i) Located in high-growth areas where there is a history of strong capital growth and is expected to continue. Areas where there is a growing population will also support demand for housing in the future.

ii) Good availability of public amenities such as convenient transport into the CBD, schools, hospitals, schools, colleges, universities and shopping.

The local council of the area you are researching will often have strategic plans and information about its future growth plans, housing requirements, infrastructure building and projections on population growth and so on. The first point of research is often the website of these councils to get a general feel and determine the economic fundamentals.

In many cases, the key is to try and identify potential within a particular site which may not be obvious at first glance. If other investors have overlooked or is not able to identify the potential, you may be able to purchase the site at a discount or in some cases, find a real bargain which will ultimately reduce your investment risk due to lower costs. Money is often made in the buying process rather than trying to achieve a high sale price at the end.

 

2. Development costs and net profit margin

Once you have identified the potential areas for your development site, you need to ensure the you do not over-capitalise on the investment cost. There are no hard and fast rules but as a general guide, the cost of the development site should be no more than 40% of the eventual market or sale value of the development. That is, if the development site costs $400,000, you need to be confident the final completed property can be sold in the open market for at least $1,000,000. This margin is to cover all other costs, the major item being the building costs, fees to council, project consultants, selling and holding costs.

The net profit margin that any proposed development should aim to achieve is approximately 15%. This 15% margin is to ensure the rewards commensurate with the risks of development because the cycle and timing of the property market determines the eventual sale price or market value of the finished product. In the event there is a downturn in the property market during the process of development, this 15% margin will act as a buffer to cushion soft prices. It is to ensure you make a decent profit in good times and at least break even or come out with a smaller profit in bad times. In this particular case above, the total development costs which include building costs, fees, selling commission and interest charges should not exceed $870,000 in order to return a net profit of approximately $130,000.

 

3. Site inspection and feasibility

A site inspection and feasibility study by an experienced town planner, land surveyor or architect can help you to minimise costly mistakes and to eliminate certain risks altogether. Often, these professionals understand the intricacies of a development site and most importantly from their experience, they are able to advise an investor about what can or can’t be reasonably done within the development site and the likelihood of your plans being approved by council.

How to subdivide land – Top strategies for success

Subdivision of land @ wealthruproperty.com

Vacant land - corner Conquest Drive & Blossom Lane, Werribee, Melbourne

Subdividing property is like buying a whole cake for $30 and then cutting the cake into 8 equal slices and selling off each slice for $5. The sum of each individual slice is greater than the whole cake.

To ensure you maximise your profits from a subdivision and/or subsequent development, you will need to calculate the projected total cost base of the newly subdivided parcel of land, its estimated sale proceeds minus capital gains tax and selling costs to determine the profit. You will also need to estimate the value of the first and original parcel of land which is now smaller as a result of the subdivision. While land appreciates and buildings depreciate, you can subdivide land in most cases without significantly affecting the resale value of the existing building which subsequently resides on a smaller parcel of land after the subdivision.

Once the land is subdivided, you will be presented with new options an example of which is as follows:

Option 1: Sell subdivided land and use proceeds to substantially reduce mortgage.

Option 2: Develop and build new dwelling/s on newly subdivided land to either rent or sell

Option 3: Renovate house on original smaller land to either enhance rental rate or perceived value when selling

Option 4: Demolish original house to build new dwelling/s

There are many permutations within each option and the challenge is to find the best option. It should be noted the option with the highest profit may not necessarily be the best if the option requires a longer time frame and involve substantially more risk.

You need to take special note and be aware of the following issues in a subdivision:

1. Restrictions, covenants and overlays

The first point of contact should be to make enquiries with your local council to ascertain if there are restrictions and covenants such as minimum size of land and overlays imposed by councils to retain the character of the landscape. You need to be aware that not every property can be subdivided.

2. Setbacks

A setback is the area between a main road and the dwelling which cannot be built upon. Depending on the streetscape, different councils will have different restrictions and requirements on the area of setback. You also need to take into consideration as to whether existing trees are allowed by council to be removed to make way for development. In many cases, council may not permit trees which have exceeded a certain size or age to be removed.

3. Crossovers

Subdivision of land will invariably require you to provide street access and this may involve the construction of a new crossover / driveway. You need to be certain the new crossover do not interfere with existing drains, trees, electrical poles / cables or cause likely objection from neighbours.

4. Easements

An easement is an area set aside for the use and benefit of a third party. Most easements are created for purposes of access to sewerage, stormwater and power and are generally constructed along side or back boundaries of a piece of land. You are generally restricted from building over an easement although discussions with council and utilities may sometimes enable you to relocate existing easements to accommodate more effective development.

5. New title and approval

It should be noted you don’t require a new title to be issued in order to sell a subdivided piece of land or house. A contract can be conditional upon the new title being issued by a certain date.

Other related posts:

Subdivision of land – Documents you need

This guide sets out the documents required for submitting a subdivision of land in the state of Victoria persuant to the Subdivision Act 1988.

A Subdivision Act plan is identified by the ‘PS’ prefix and in the plan number located at the top right of the plan.

Documents you need:

  1. Plan of subdivision – This plan must be prepared on heavyweight paper and signed by a registered land surveyor and certified by the local council.
  2. A transparency for each sheet of the Plan – This is a requirement of local council and the Plan or transparencies which are creased or damaged will not be accepted by the council.
  3. Land surveyor’s report – This document is mandatory for all subdivision plans including non-survey plans.
  4. Abstract of field records – This document must be provided if the Plan is based on a survey. If you do not have this document, you will need to supply a reference to its location in Land Victoria.
  5. Application (Form 10) – The application can be purchased from Land Victoria and should be typed or legibly written in ink. The use of self-correcting typewriter ribbon or correction fluid is not permitted. The back of the form must not be used and any order to register or consent of mortgagee should be endorsed on the front of the application or on a separate A4 size paper.
  6. Certificate of title – Not a photocopy, which may be:

a) in your possession

b) already lodged at Land Victoria in a current dealing. In this case if another party has produced the certificate of title they must endorse and sign as ‘order to register’ at the bottom of the PC form, or

c) held by a financial institution, solicitor or other party

who will endorse an ‘order to register and issuing instructions’ at the bottom of the PC form and make the certificate of title available at Land Victoria to enable you to lodge your plan. In most cases, the party making the certificate available will charge a fee.

You must ensure the certificate of title has been made available BEFORE attempting to lodge the Plan of subdivision.

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Subdivision of land – Calculating capital gains tax

New land release off Exford Road, Melton South @ wealthruproperty.com

New land release off Exford Road, Melton South

Your home is usually exempt from capital gains tax (CGT) if you sell it due to the Principal Place of Residence (PPOR) exemption. However, if you subdivide the land upon which your home is built and sell off the vacant land separately from your home, this transaction will not qualify for the PPOR exemption.

Therefore, if you own a parcel of land and decide to subdivide it into 2 or more distinct parcels, you may be liable for CGT when you sell off the subdivided parcels. However, the process of subdividing the land will not result in any CGT liability as long as you continue to own the subdivided parcels. You will need to divide the acquisition and subdivision costs of the land across the subdivided parcels on a reasonable basis.

The example below illustrates the calculation of CGT for a subdivided piece of land:

Ivan bought a house on a 950 sqm block of land in December 2007 for $280,000 whereby the value of the house and land was $60,000 and $220,000 respectively. Ivan has lived in the house with his wife as his PPOR since the purchase and incurred $13,000 in stamp duty, legal fees and other costs.

In January 2009, Ivan’s wife felt the house was too big for the both of them and decided to subdivide the land into 2 separate and distinct parcels. Ivan agreed with his wife and proceeded to discuss with the local council and incurred the following costs for subdivision:

  • Land surveyor’s fees, legal, application fees                            $15,000
  • Fees and charges for utilities – water, electricity etc               $5,000

Ivan sold the rear parcel of land in December 2009 for $150,000 and incurred legal fees of $3,000 on the sale.

Since the rear parcel of land was separate from his PPOR, Ivan is not exempt from the PPOR status and proceeded to value his properties as follows with the help of a local valuer who advised the front and rear parcels of land were 60% and 40% of the original cost since the rear parcel was slightly smaller. Therefore, Ivan apportioned the original cost of the land of $220,000 as follows:

  • Front parcel =  $220,000 x 60% = $132,000
  • Rear parcel = $220,000 x 40% = $88,000

Ivan’s calculation of his liability for CGT for the sale of the rear parcel of land to be as follows:

CGT calculation of Total Cost Base rear parcel of land

$

Cost of the land

88,000

40% of stamp duty and legal costs of $13,000

5,200

40% of surveyor’s fees, legal costs and application fees of $15,000

6,000

Utilities connection charges

5,000

Legal costs on sale of the rear parcel of land

3,000

Total Cost Base

107,200

The CGT on the sale of the rear parcel of land is therefore: Sales proceed less Total Cost Base = Capital Gain

150,000 – 107,200 = 42,800

Since Ivan has owned the rear parcel of land for more than 12 months, he can reduce his capital gain of $42,800 by 50%, after deducting any capital losses which he may have incurred for other assets.

Hence, only a capital gain of $21,400 is subject to the applicable rate of CGT for this transaction.

If Ivan sells his home on the front parcel of land, then he is eligible to claim the full PPOR exemption if he has used it as his main residence during the period which he owned the property. *

* Ivan may be eligible for partial / full exemption if he rented the house on the front parcel under the Australian Taxation Office’s  6-year rule for CGT.

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Subdivision of land – the approval process

Subdivision of land @ wealthruproperty.com

Vacant land - corner Conquest Drive & Blossom Lane, Werribee, Melbourne

The process of subdividing land requires the approval of both the local Council and relevant utilities such as the water authority. For property owners who are not experienced in submitting a Development Application (DA) or Planning Application (as it is called in Victoria), it may be worth considering professional advice and assistance in dealing with the myriad of regulations and requirements of local councils. Each council, although having similar responsibilities in regulating development approval, have their own processes and conditions in approving applications for subdivision and development.

Professional advice include the services of town planners, registered quantity and building surveyors, architects and specialist property development firms which provide services such as site assessment, quantifying and estimating subdivision and building costs as well as project management services to ensure efficient and effective build quality and process. Brutal Art Design + Build or BAD + B is one such property development firm which helps home owners and investors to obtain approval for DAs and permits and minimise the risks involved in subdivision and property development. BAD + B is an award-winning firm based in Melbourne.

I have chosen the Melton Shire Council as an example to illustrate the application process.

The first point of contact is the Melton Council’s Planning and Development unit. Every subdivision that is approved by Council will have restrictions attached which vary according to each individual site. Whilst it is possible to subdivide land prior to obtaining approval to develop the land, most local Councils prefer approval to be obtained for development before applying for the subdivision.

Especially for residential subdivision, subdivision will generally only be approved if a planning permit has been issued for a multi dwelling development. This is because Councils want to ensure first and foremost that an appropriate development can be accommodated on the smaller lots after subdivision.

A licensed Land Surveyor is generally required to prepare plans for subdivision and other information required for a subdivision planning application and for the certification process under the Subdivision Act 1988.

The subdivision process occurs in 4 main stages and must be undertaken in this order:

  1. A planning permit is required for subdivision under the provisions of the Council;
  2. Certification of the plan of subdivision, which approves the subdivision under the Subdivision Act 1988;
  3. Obtaining a Statement of Compliance, which is the final approval stating that all requirements have been met; and,
  4. Lodgment of the documents at Land Victoria. This allows new titles to be issued for each lot created under the subdivision.

Stage 1 – Planning Permit

An application for a planning permit must be made with the Council’s Planning and Development unit for the consideration of the subdivision. Details of the planning permit application process can be found in the ‘How to complete planning permit application form’ Information Guide. The processing of an application to subdivide will sometimes include the referral of the application to external authorities such as utility companies (water, gas and electricity) for their consideration. These authorities often require conditions to be placed on any planning permit issued.

Stage 2 – Certification

Once the planning permit has been issued by council, the application for certification can be considered.
An application for certification must include:

  • An application form;
  • The applicable application fee;
  • Twelve (12) copies of the plan of subdivision (A4 size) and
  • Two (2) A3 heavyweight copies of the plan of subdivision.

The plan of subdivision must be prepared by a licensed Land Surveyor. An application for certification must be referred to the relevant authorities (e.g. water, gas, electricity, roads etc.) to ensure that the subdivision is appropriate. Once
all authorities have provided their consent to certify the plans, the plan of subdivision can be certified by Council.

Stage 3 – Statement of Compliance

A Statement of Compliance will be issued when the Land Surveyor has provided relevant documents and that all planning permit conditions have been complied with, all authorities have provided their consent that all their requirements have been satisfied.

Stage 4 – Lodgement

Once the Certified Plan of Subdivision and the Statement of Compliance have been issued to the licensed Land Surveyor, the plan can be lodged with Land Victoria enabling the issue of new certificates of title.

Public open space requirements

To ensure there are sufficient public open spaces for residents of the local community, subdividers may be required to contribute funds to assist in the purchase of land for public open spaces and the improvement of and ongoing maintenance of facilities in parks, ovals and other public open spaces within the municipality. Alternatively a portion of the subject land can be set aside to be used for such purposes. A subdivider is generally required to contribute to public open space if the land will be subdivided into more than two lots, or into two lots where either can be further subdivided at a later stage.

Open space contributions may vary between the types of subdivisions being carried out and the number of lots to be created, though can generally be up to 5% of the land value/size. Higher percentages may apply in specific areas of the
municipality.

Works

Depending upon the subdivision, work, such as vehicular crossings, road, drainage and general services provisions may be required to be constructed prior to the issue of a Statement of Compliance.

Fees

Throughout the subdivision process there are a number of fees required. Fees include, but are not limited to:

  • Planning Permit Application fee;
  • Certification Application fee;
  • Open space contributions;
  • Service authority fees and / or costs;
  • Land Victoria fees for lodgment of Certified Plans;
  • Works supervision fees;
  • Maintenance of works bonds; and,
  • Professional fees for relevant parties (e.g. licensed Land Surveyor).

Fees and costs generally depend upon the type and size of the subdivision.

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