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Taxation Newsletter – October 2015
September 22, 2015 | 
Author Excessive deduction claims on holiday homes on ATO hit list
The ATO is increasing its focus on holiday home investors and, in particular, whether they are correctly claiming deductible expenses. A key concern is when people make claims for expenses when the property was not available for rent. The ATO has recently advised that it will be sending letters to taxpayers in approximately 500 postcodes across Australia, reminding them to only claim the deductions they are entitled to, for the periods the holiday home was rented out or was genuinely available for rent.
TIP: Holiday home investors should be aware that the ATO appears to be taking a broad approach in monitoring rental deductions. Where relevant, it may be prudent for holiday home investors to take this opportunity to review the rules surrounding holiday home tax deductions to ensure that any risks or issues are addressed in a timely manner. It may also be a good idea to review records now so that you are prepared should the taxman come knocking. If you have any questions about this issue, please contact our office.
Foreign property investors – reduced penalty period ending
The ATO has reminded foreign investors that the reduced penalty period for possible breaches of Australia’s foreign investment rules for purchases of Australian real estate will close soon. The reduced penalty period is only available until 30 November 2015. From 1 December 2015, new criminal and civil penalties will apply. The ATO said if foreign investors disclose a breach of the rules for residential real estate purchases during the reduced penalty period, depending upon their circumstances, they may:
- be given a concessional period of 12 months to divest themselves of the property, rather than a shorter period;
- not be referred for criminal prosecution.
Payroll tax grouping – know the rules
For payroll tax purposes, businesses may be grouped with other businesses if there is a link between the companies. Businesses may be deemed linked in several ways. One of the most common ways is where two or more businesses are controlled by the same person or persons. However, there are specific exclusions under the payroll tax grouping rules which could apply for a business depending on the circumstances. This will require making an application to the relevant state or territory revenue authority.
When a group exists, only a single tax-free threshold will apply to the whole group. That is, the separate businesses themselves will not each have the benefit of the tax-free thresholds. Each member of the group will be liable for any outstanding payroll tax of the other group members. Therefore, it is important for businesses to identify whether they could be grouped for payroll tax purposes.
TIP: The potential eligibility for exclusion from the payroll tax grouping rules should be assessed. Furthermore, as business conditions may change and as part of the overall management of a business, it may be prudent to regularly examine your business’s payroll tax obligations.
No GST credits for mining accommodation
The Full Federal Court has dismissed a taxpayer’s appeal from an earlier decision which held it was not entitled to input tax credits for acquisitions relating to providing accommodation to employees and contractors working in the Pilbara.
The taxpayer, Rio Tinto Services Ltd, was the representative member of the Rio Tinto Ltd GST group, which carried on a large-scale mining enterprise in outback Australia. The group provided and maintained residential accommodation for its workforce in various locations, comprising some 2,300 houses and apartments. This was operated at a considerable loss, for example, in 2010 the taxpayer received $6.1 million in rent but the associated costs exceeded $38.8 million.
The case was conducted as a test case for GST paid in October 2010 on expenditure including construction and purchase of new housing, repairs, cleaning and landscaping. The taxpayer claimed it was entitled to input tax credits of nearly $600,000 for acquisitions made in providing and maintaining residential accommodation for the group’s workforce in the Pilbara region. It argued the housing for its workers were a necessary part of its mining operations.
The Full Federal Court said it was clear from the facts that all of the acquisitions related wholly to making supplies of rental residential accommodation. Although the supplies of accommodation were for the broader business purpose of carrying on the taxpayer’s mining operations, it said this did not alter the fact that the acquisitions all related to supplying premises by way of lease, which were input taxed supplies.
ATO’s proportionate compliance approach to SMSFs
From 1 July 2014 the ATO has three new regulatory compliance powers to deter and address contraventions of the superannuation law by trustees of self-managed super funds (SMSFs). These three new powers include the ability of the ATO to issue education directions, rectification directions and administrative penalties. The new laws were introduced to give the ATO more flexible and proportionate powers to deal with the various levels of noncompliant behaviour by trustees.
It is important for trustees to understand the ATO’s compliance approach to administrating the SMSF sector. A key message that the ATO has been communicating to all trustees is for them to rectify a breach as soon as it is identified. According to ATO Assistant Commissioner, SMSF Segment, Superannuation, Kasey Macfarlane, in these circumstances, the ATO would be “unlikely to apply further sanctions unless other factors are identified, such as if the same or similar contraventions frequently arose”.
Ms Macfarlane said the ATO uses “the new powers and penalties to drive compliance, not to increase revenue”. “So while you can expect to see us actively using the directions powers, in a large percentage of cases our application of SMSF administrative penalties will be more judicious, via favourable remission requests, for first offences,” she said.
Find your small lost superannuation accounts
A Bill has been introduced into Parliament which contains legislative amendments to increase the account balance threshold below which small lost member accounts will be required to be transferred to the Commissioner of Taxation, ie from $2,000 to $4,000 from 31 December 2015, and from $4,000 to $6,000 from 31 December 2016.
TIPS:
Moving all your super from multiple accounts into one account (known as “consolidating your super”) might help you to save on fees and make managing your super easier.
There may be sound reasons for maintaining a separate small superannuation account. It may be prudent to assess those reasons and, if those reasons are still valid, to take steps to ensure that you remain an active fund member.
Individuals are able to claim back their superannuation from the Commissioner at any time. Interest, calculated in accordance with the Consumer Price Index (CPI), has been payable on unclaimed superannuation money repaid since 1 July 2013.
Please contact us for further information.
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Property Newsletter – September 2015
Investor loan changes continue to unfold
Australia’s finance watchdog, the Australian Prudential Regulation Authority (APRA), has continued to increase pressure on the country’s lenders in a bid to restrict further growth in investor loans.
Since the June edition of Property Wealth News, when we first reported APRA’s intentions to implement tougher lending criteria for investor loans, Australian lenders have moved to meet the new requirements.
This entails lenders observing a speed limit of 10% annual growth in investor loans, which is designed to cool the overheated property markets in Sydney and Melbourne, which have been driven largely by investor activity.
Effectively, there’s no silver bullet for lenders to meet the new requirements and as such these institutions are changing any, or all, or the following to meet the 10% target:
- Acceptable loan-to-value ratios
- Serviceability requirements
- Interest-rate buffers
- Negative gearing allowances
- Rent allowances
- Rate adjustments
To ensure lenders are taking the necessary steps to increase scrutiny of investor-loans, APRA has begun auditing these financial institutions on a weekly basis.
Amid these changes to assessing investor-loans, property investors should seek advice from brokers that specialise in investment finance.
This is particularly pertinent for investors who are considering purchasing a property within the next 12 months, but also applies to any other property investors to ensure their loans remain the most suited to their long-term circumstances.
Why property selection is critical to creating wealth
Not all properties in one single city or suburb record the same growth rates and the cost of buying the wrong property could be higher than you think.
While anyone with a deposit or enough equity in their home can become a property investor, buying a high-performing investment property is a totally different ball game.
It requires a comprehensive understanding of the property market, a firm knowledge of the underlying economic drivers that will lead to higher capital growth and literally hundreds of hours of research and monitoring the market to find the right property.
Quite simply, finding the right property is hard work, and then you have to make sure your finances are structured effectively as well as negotiating the purchase to ensure you secure the best price and contract terms.
However, when it comes to property investment, the hard work is generally worth the reward.
For example, if an investor purchases an investment property for $500,000, the capital gains will be substantially different depending on the growth rate.
At a compounded growth rate at a moderate 5%, the capital gains on the property will be about $140,000 after 5 years and about $320,000 after 10 years.
While these returns might seem sufficient, the capital gains are significantly more if the compounded growth rate is only slightly higher at 8%.
At this rate, the capital gains on the property will be about $235,000 after 5 years and about $580,000 after 10 years.
Given this, it’s easy to see why property selection is critical to optimising your wealth.
The performance of your first investment property will also have a large impact on how soon you can purchase subsequent investment properties.
Indeed, the sooner you can purchase another high-performing investment property the quicker you can build your wealth, so it pays to select the right property the first time.
How to build your way to wealth – part 2
Property development is regarded by many investors as the Holy Grail because of the huge profits on offer. So what does it take to be a doyen of development?
In Part 1 of this article series we outlined the first 3 steps to becoming a successful property developer.
This included the necessity to know the intricacies of the property development industry, to hold a firm understanding of the property market and the essential considerations when searching for a development site.
In the second part of this three-part series we explain steps four to six – the need to complete a feasibility study, determining if you’re an investor or a developer (as this will impact your tax bill) and how to buy your site wisely.
- Complete a feasibility study
After you’ve located a potential site that you believe meets your criteria, you’ll need to complete a feasibility study to ensure it does. Unless you’ve done this before, you’ll need to engage professional assistance to compile a feasibility study. The aim of this is to determine the size of the profit, or loss, that you would make should you proceed with the development.
The following information should be detailed in a feasibility study:
- All easements or covenants on the land title and any impact on development
- Analysis of soil to determine engineering and drainage requirements
- Position of utilities and services, such as power poles and sewerage drains
- A calculation of building and subdivision costs
- A detailed timeframe of the project
At this stage you would have invested a considerable amount of time into the project, however if it doesn’t pass a feasibility study you’ll need to consider a different site.
- What’s your tax status?
Whether you’re considered a developer or an investor can determine the amount of tax you’ll have to pay on the development.
For example, as an investor you will pay tax on any profits from your development but if you hold onto the property for more than 1 year you may be entitled to a 50% discount.
Conversely, as a developer you may not be eligible for a tax discount and you may have other tax obligations.
To provide peace of mind, you should seek advice from tax accountants to determine your likely tax status.
Your accountant should also be able to advise as to the best type of structure to acquire the development, whether it’s an individual name, joint ownership, as a company or in a trust. Each has its own financial and legal pros and cons.
- Be an intelligent buyer
The amount you pay for your development site is one of the few factors that is within your control and this will have a considerable impact on the profitability of your project.
It’s also important to secure favourable contract clauses. Ensure an adequate due diligence period is included in the contract so you can conduct thorough research into the site’s profitability as well as walk-away clauses that allow you to cancel the acquisition if you’re not fully satisfied.
Keep in mind, sales agents work for the seller so it can be wise to engage the services of a buyer’s agent to oversee negotiations and ensure contracts are weigh in your benefit. A buyer’s agent can also keep your identity and motives confidential.
The third and final part of this article series, to be published in the October edition of Property Wealth News, we will explain how to properly structure your finances, how to choose the best designers and builders and whether to sell or hold your final product.
What your property manager needs to do at the end of a tenancy
While landlords fear vacancy periods in between tenants, there are certain matters your property manager needs to attend to before a new tenant can move in.
It might seem ideal for a tenant to move into your property the day after another vacates, thereby ensuring no disruption to your rental income.
However, this rarely occurs and in the large majority of situations, this is not entirely practical.
Generally, there has to be at least a few days when the property is empty so the property manager can conduct the necessary tenant-vacate checks.
One of the most important tasks to complete when at the end of a tenancy is the final inspection and the completion of a property condition report.
This is necessary to ensure the property has been adequately cleaned and prepared to a suitable condition for the new tenant.
It’s also a chance to identify any excessive wear and tear to the property, if any items have been wrongly removed or left at the property or if there is any damage to the property.
In some instances, the outgoing tenant may be required to revisit the property to amend any issues and, subsequently, the property manager will have to reinspect the property to ensure the problems have been addressed.
Provided these processes have been followed, the bond can be finalised and the appropriate amount returned to the tenant before the property condition report is updated.
While a brief vacancy period allows the property manager time to complete the necessary processes, it’s also a good time for the landlord to consider any maintenance issues.
Ideally it’s better to complete larger jobs when the property is vacant, such as painting, flooring or minor renovations, which will help to optimise rents.
Although landlords do lose rental income during vacancy periods, these times should be used to ones’ advantage because completing tenant-vacate checks and maintenance jobs will ultimately
Buzzing inner-city suburb highly sought after
This affluent suburb is located in the hustle and bustle of inner metropolitan Perth making it a highly sought-after area for many younger people.
Highgate is situated just 2 kilometres from the Perth central business district and has a population of nearly 2,000 residents with a median age of 33 years.
As well as being located close to the Perth CBD, Highgate’s other major drawcard is the Beaufort Street café strip, which features a variety of cafes, restaurants, retail and nightlife offerings.
Given these highly appealing aspects, Highgate’s average house price is considerably high at $840,000.
About two-thirds (61%) of dwellings are rented in the area, which is more than double the Perth average of about 29%.
Highgate comprises a mix of residential zoning ranging from R30 through to R80, however the City of Vincent has released a draft town planning scheme that incorporates rezoning throughout much of the suburb.
In addition to the slated zoning changes, revised criteria for development has also been proposed.
The suburb has many parks, including the well-known Hyde Park, and multiple primary schools which service the area.
Finance Newsletter – September 2015
Do you have the most suitable loan for your circumstances?
Do you have the best rate available?
If your interest rate is over 4.09% variable then you may be able to save thousands per year by changing loans and or banks. I have access to a bank that is currently offering customers 4.09% variable home loans for the for the first 3 years of the loan. Conditions apply. With no application fee, no valuation fee .If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA.
Taxation Newsletter – September 2015
Small business tax discount on the way
In a surprise – but welcome – move in the 2015 Federal Budget, the Government announced a small business tax discount. The Government said that, with effect from 1 July 2015, individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset through the individual’s end-of-year tax return.
Example: A person running a business as a sole trader has an annual turnover of $300,000 and taxable income of $75,000. Under the current law, the business would pay tax, at the owner’s marginal tax rate, of around $16,000 in total. Under the proposed new law, the $16,000 tax bill on the business income would be reduced by 5%, or $800. While there is no change in the owner’s tax rate, under the new law the owner would pay only $15,200 tax.
Legislation to implement the small business tax discount is currently awaiting formal enactment.
Ride-sharing provider challenges ATO’s GST view
Uber BV has lodged an application in the Federal Court to challenge the ATO’s view on GST in relation to ride-sharing drivers.
In May 2015, the ATO released information on its website providing its view of the tax obligations of people providing services in the sharing economy. The ATO was of the view that people who provide ride-sourcing (or ride-sharing) services were providing “taxi travel” under the GST law, and were therefore required to register for GST regardless of turnover, charge GST on full fare amounts, lodge BASs and report income in their tax returns. The ATO had given ride-sourcing drivers until 1 August 2015 to obtain their ABN and be registered for GST.
However, in a company statement, Uber argued that the ATO’s position unfairly targets Uber’s driver-partners. In the meantime, the ATO has maintained its view that people who provide ride-sourcing services are providing “taxi travel” under the GST law, and that it expects all ride-sourcing drivers to be registered for GST.
TIP: According to the ATO, although ride-sourcing drivers need to account for the GST on full fare amounts, they can also claim GST credits for relevant business expenses. The ATO says drivers must report income earned from providing ride-sourcing services; however, they can also claim deductible business costs. Please contact our office for assistance.
Crowdfunding for small proprietary companies: consultation
Crowd-sourced equity funding (or equity crowdfunding) is an innovative form of fundraising that allows a large number of individuals to make small equity investments in a company.
The Government is looking at ways to facilitate equity crowdfunding and has released details of its proposed regulatory framework for public companies. However, a key part of the Government’s public consultation is to also examine whether its proposed regulatory framework for public companies should be extended to proprietary companies.
The Government notes that proprietary companies are subject to limitations under the Corporations law on the way they can raise funds. These limitations make it difficult for proprietary companies to effectively use equity crowdfunding to raise funds from a large number of small shareholders. Accordingly, the Government is seeking views on way it could amend the law to make capital raisings by small proprietary companies more flexible. Public consultation closes on 31 August 2015.
SMSFs in pension phase need to exercise care
The ATO is of the view that most trustees of self managed super funds (SMSFs) do the right thing. However, it has identified a number of issues concerning SMSFs in pension phase, noting the growing number of people expected to receive a pension in the next 10 years.
The following gives a snapshot of some key issues identified by the ATO:
- Setting up and starting a pension: In the pension establishment phase, a fundamental and critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that the legislated rise in the preservation age came into effect from 1 July 2015 – this affects people born after 30 June 1960.
- Paying a pension: One of the most common reasons for an SMSF in the pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee has failed to pay the required annual minimum pension amount to a member.
- Ceasing a pension: The ATO is starting to see a range of issues related to what happens in the unexpected event of a pensioner’s death. For example, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF’s deed and the law?
TIP: The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). As the income of the SMSF is diverted to meeting the loan obligations of the fund, the ATO has found there can be insufficient funds remaining to make the required pension payments. There is also an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm’s-length rules in an effort to try to overcome their liquidity issues. If you have any concerns, please contact our office for further information.
ATO data-matching: immigration visa holders
The ATO has announced that it will acquire names, addresses and other details of visa holders, their sponsors and migration agents for the 2013–2014, 2014–2015, 2015–2016 and 2016–2017 financial years from the Department of Immigration and Border Protection (DIBP). The purpose of the data-matching program is to ensure that taxpayers are correctly meeting their taxation obligations. It is estimated that records relating to one million individuals will be obtained.
The ATO has been data-matching visa data from the DIBP (and its predecessors) against ATO data holdings for a number of years. The ATO said this electronic data-matching has been very effective in assisting to mitigate compliance risks. According to the ATO, empirical evidence from earlier data-matching programs has confirmed an elevated level of risk within the subset of taxpayers who are first-time lodgers with DIBP links.
Property Newsletter – August 2015
Time is money for development finance
While developers are always mindful of construction costs, it’s just as important to be aware of the costs associated with development finance, particularly when building delays occur.
Many first-time developers often forget that for every day their development is delayed, interest on their loan is still accumulating.
For example, let’s say a developer has a project which is being funded by a $2 million loan and the project hits significant delays at the halfway point.
This delay is likely to cost the developer in the vicinity of $13,000 each month in compounding capitalised interest, which means they pay interest on the interest.
While developments don’t usually experience month-long delays like this, it’s not unusual for delays of a day or two to occur at each step of construction.
The plumber, the tiler, the landscaper not starting early enough or the builder getting in their way.
It’s easy to see how a few days here and there can quickly amount to a month’s worth of downtime.
The cost of delays will vary from each project as it will depend on a number of factors, such as the interest rate, loan amount and drawn funds.
However, the interest on a fully drawn $2 million loan with a typical interest rate is about $13,000 per month capitalised and compounding.
Add to this other holding costs, such as rates, and development finance could end up costing a developer many thousands of dollars extra.
Many investors who want to develop but don’t have the time to manage the project often appoint a development manager who will manage the entire project and keep the builder to their time frames. Momentum Wealth is managing over $170 million in projects for our clients. If you’d like to speak to one of our development specialists please give us a call on 9221 6399 to see how we can help you with your project.
Tax implications for expat property investors
Despite living overseas, many Australian expatriates still regard property investment in their homeland as an attractive option. But what tax implications does this pose?
The tax implications of property investment can differ between Australian expatriates and those residents living in Australia.
Whether an individual is a tax resident under Australian law is dependent on a variety of factors and is unique to each case.
Subsequently, Australian expatriates, or expats as they are more commonly referred to, should seek the professional opinion of an accountant or lawyer who specialises in this area.
However, all income earned in Australia, including property rental income, is subject to tax in Australia.
In the instance where an individual is not an Australian tax resident, but they receive a rental income from an Australian-based property, they are required to prepare and lodge an Australian income tax return.
The non-resident tax rate stands at 33% for all income up to $80,000. This increases to 37% for income between $80,001 and $180,000 and 47% for income over $180,000.
Those individuals considered residents greatly benefit because they enjoy a much lower tax rate for the lower tax brackets.
For residents, tax rates start at 0% for income up to $19,400. This increases to 19% for income earned between $19,401 and $37,000 and 33% for income between $37,001 and $80,000. The rate of taxation after this is the same as a non-resident.
What’s important to note is that residents and non-residents can claim a tax loss if their tax deductible expenses are greater than their Australian taxable income. Residents can claim the loss against their other income. If you are a non-resident for tax purposes you can carry the loss forward to offset against future income.
A wise strategy for an Australian who is moving overseas to work is to accumulate tax losses on Australian property, which can then be offset from their income when they return to work in Australia. This can include any capital gains that are made when the property is sold.
This can be highly beneficial in instances where non-cash tax deductions, including depreciation, are a part of the tax loss.
If you are living abroad and are interested in purchasing an investment property in Australia, keep an eye out for our upcoming property investment eBook for expats.
Property selection critical for success
Affordability and proximity to the Perth CBD are this suburb’s two main strengths, however investors need to focus on certain pockets to make the best capital gains.
Girrawheen is located within the City of Wanneroo and comprises a population of about 8,300 residents with a relatively young median age of 33 years.
The suburb is 12 kilometres from the Perth CBD, which is accessible via Wanneroo Road, and is comparatively affordable with an average house price of $430,000.
Currently, about 80% of dwellings within the suburb are houses, which is reflective of its zoning – low-density residential (R30 or lower).
However, slated changes to Girrawheen’s housing strategy have recommended an increase in housing density to R20/40 and R20/60 in strategic locations, such as around the suburb’s shopping centres.
Given this, as well as some high concentration of state housing in the suburb, investors need to be particular about the specific pockets to buy in.
Girrawheen’s two major shopping centres are the Summerfield and Newpark precincts, while Warwick Shopping Centre is a short drive away but larger.
About 70% of the properties within the suburb are either fully owned or being purchased with 30% being rented – about the Perth average.
Girraween boasts many parks and ovals including the Warwick Reserve and Leisure Centre on its western boundary.
There are also multiple primary schools within the suburb as well as Girrawheen Senior High School.
Residents can also take advantage of the Joondalup train line with Warwick station only several kilometres from the suburb.
Leasing tips in a tenants’ market
Like many industries, property markets run in cycles according to supply and demand. So what can be done to lease your property in a tenants’ market?
When supply catches up to demand, it’s natural for the rental market to shift in favour of tenants.
While it’s inevitable that at some stage, under the supply and demand model, the momentum will swing back to the advantage of landlords, what can be done in the meantime?
One of the biggest mistakes made by landlords in a tenants market is to refuse to meet market demand.
By failing to adjust rents or contract terms, landlords expose themselves to significant financial losses.
This might mean having to drop the rent or to offer more flexible contracts that will suit tenants, such as a 6-month contract or pet-friendly contract.
A $10 or $20 loss in weekly rent is negligible compared to a property that remains empty for several weeks because it’s overpriced.
Landlords should also present their properties to the highest standards, ensuring they are clean, enjoy plenty of natural light and the gardens are well maintained.
When in-between tenants, it’s a great opportunity to complete renovations or odd jobs that will help attract prospective tenants.
A fresh coat of paint, new carpet, installing modern fixtures and fittings or other cosmetic upgrades will make a property more appealing.
In the event of an expiring lease, negotiations for a new contract should be undertaken well in advance.
Landlords should engage tenants up to 75 days before the lease is due to expire to determine their tenants’ intentions.
From there, landlords can start to negotiate the terms of a new lease, or start planning the search for a new tenant.
How to build your way to wealth – part 1
Property development is regarded by many investors as the Holy Grail because of the huge profits on offer. So what does it take to be a doyen of development?
When done right, property development can deliver handsome rewards for investors.
However, the pitfalls and challenges are great and varied, which means first-time developers need to be extremely cautious about their investment decisions.
In the first part of this three-part series, we outline 10 tips to help property developers mitigate the risks and maximise profits.
1. Know the ins and outs of the industry
Before you even start thinking about development sites or plans, you need to gain a comprehensive understanding of property development. If you’ve decided to oversee the development yourself, there are dozens of people you’ll need to coordinate with throughout the process. It’s wise to know who these people are and the roles that they play
Some of the various specialists include:
- Building inspectors
- Engineers/geotechnicians
- Solicitors
- Surveyors
- Building companies
- Designers/architects
- Town planners
- Local councils
Generally, it’s not advised that individuals oversee their own developments, particularly first-time developers. This can be one of the biggest mistakes to make as many underestimate the requirements and demands of property development and soon find themselves facing massive budget blowouts. Rather than overseeing the development yourself, you can engage the skills of a development manager, who will complete all the leg work for you. Alternatively, you can also participate in a joint venture or a property syndicate, which allow you to gain exposure to a development project with less risk.
2. Understand the market
Equally important as knowing the development industry is understanding the state of the property development market. To do so, you’ll need to consider a range of factors such as the price points of respective suburbs; the demand of particular dwelling types; the stage of the property cycle; and economic drivers of the area, among others.
To gain a comprehensive understanding of the market, research is essential. Look at recent data and statistics about demand and supply and talk to property professionals to obtain first-hand insights. Your knowledge of the market can mean the difference between buying a development site with high-upside growth potential or one that turns out to be a financial flop.
3. Search for a development site
Finding the right development site is the most important step to becoming a successful property developer. The development potential of your site will be dependent upon its size, zoning and location, as well as other factors such as if the site contains easements. When you’ve found a site, you need to consider a number of issues. These include:
- The zoning regulations and subdivision rules. You should obtain a written statement from the relevant council as these can often be misquoted in advertisements.
- If the site is heritage listed. If this is the case it’s usually better to continue your search for a different development site.
- Any structure plans, planning policies, area plans or proposed rezoning for the area that might affect the site.
The second part of this three-part series will be published in the September edition of Property Wealth News, and explain how a feasibility study will you help to avoid investing in a dud development and how to purchase your site like a professional.