Buying your first property development site is one of the most exciting, yet daunting things, you’ll ever do.
Every seasoned property developer will tell you that the success of your project is created when you buy, not when you sell. This couldn’t be more true, as most property developers wear their mistakes as battle wounds that remind them constantly of the potential pitfalls associated with buying a property development site.
So, what could possibly go wrong? We’ve identified eight potential pitfalls to avoid when buying a property development site.
1. Easements, Encumbrances and Interests
One of the first things you will need to do is engage your solicitor to undertake a Title Search of the property to identify whether there are any legal easements, encumbrances or interests over the property.
An easement is a section of land registered on your property title that provides another party the right to use the land for a specific purpose despite not being the land owner. For example, a shared driveway (registered); or statutory easements (not registered) on your title, such as power or telephone lines, or drainage easements.
Other encumbrances or interests over property include memorials (e.g. reclaimed swampland), registered mortgages (e.g. debts owing to a bank), or caveats (e.g. a legal or statutory claim against the property.)
2. Environmental or Contaminated Land Register
You’ll need to confirm that the property is not listed on any environmental or contaminated land registers. Again, this is one for your solicitor.
Why is this important? Well, if your property is listed on a register as being contaminated, then the cost of removing or remediating (e.g. treating) the property will be an additional expense over and above your standard construction cost.
Whilst your solicitor will be able to tell you whether the site is listed on a register, there is still a possibility that it may be unregistered and still contaminated.
Subsequently, for small and large developments, it is wise to engage an environmental engineer to undertake a report confirming that the site is unaffected by contamination as part of your formal due diligence period.
3. Potential Road Resumptions
Local councils and State Governments across the country plan for future road corridors by creating road resumption zones that are registered on a number of different platforms. It’s often tricky to determine, however your town planner and/or solicitor should be able to determine whether your property is affected.
The impact of a road resumption is that you may lose a small (or even significant) portion of your developable area, therefore seriously impacting the profitability of your project.
4. Heritage and/or Character Protection
Is there an existing building on the property that looks like it’s been around for more than a few decades? Well, if so, there’s every chance the building may be protected by heritage or character overlays.
These overlays may be determined by local authorities and/or State Governments. Again, ask your town planner and/or solicitor to run the ruler over the property and confirm either way.
5. Unpaid Land Tax and Council Rates
This is a pretty obvious, yet a frequently forgotten one. Ask your solicitor to run a check on whether there are any outstanding land taxes or council rates over the property. You don’t want to be liable for these, let alone bothered having to deal with the administrative time waste associated with it.
6. Underground Services and Infrastructure
When you start digging, it’s far more likely that you’ll hit essential services than a dinosaur!What are these services? They can include sewer, water, gas, electricity, stormwater and telecommunications (e.g. NBN, fibre optics).
And why is this important? Firstly, it will affect your design as some of these services cannot be built over. And secondly, it may impact your civil construction costs as you may need to extend, relocate or upgrade the service infrastructure to support the additional demand for services created by your development.
Ask your town planner and/or solicitor to run a search (for example, in Queensland you can run a Dial Before You Dig search) that will provide a map of where the essential underground services are located.
7. Vegetation Protection or Overlays
You will need to ensure that you are aware of any vegetation, environmental or biodiversity protections and overlays that exist over your property.
What are they? These protection orders and overlays are designed to preserve green corridors, significant vegetation or environmental habitats that are considered significant in the eyes of the local and State authorities.
Why is this important? Well, they can seriously hurt the viability of your development as these restrictions may drastically impact your development yield and/or significantly increase the cost of your construction.
Again, your town planner and/or solicitor will be able to guide you through this process.
8. Compliance Certificates
Is the existing property approved for the use that it is currently operating as? Are the correct approvals in place? Are you buying an illegal property, such as an unapproved boarding house or student accommodation?Ask your town planner and/or solicitor to confirm the existing use of the property is compliant and certified by the relevant authorities.
And finally, we all remember the devastation associated with the Brisbane floods in 2011 and 2013, especially the property developers whose development sites went under!This is of particular relevance to the Queenslanders out there, however it is still very relevant wherever you are. Flooding occurs across the country and even in the major cities of the world, such as New York and London.
As climate change and urbanisation collide, our cities are under increasing pressure to defend against natural disaster and the environment. Subsequently, councils are more focused than ever to build resilience into our urban fabric.
Ask your town planner to review the property against the relevant flooding codes to ensure that you’re not affected or, if you are, that you have a solution in hand.
Confused? Daunted? Paranoid?
Don’t be. Be aware of the issues, but don’t necessarily expect yourself to be able to answer every question or respond to every challenge. The best advice is to engage a reputable town planner and solicitor and ask them to complete a ‘comprehensive legal and planning due diligence” before parting with your hard earned money.
Adam Di Marco is the Managing Director of Di Marco Group, a Brisbane-based property advisory, management and development firm focused on creating and delivering thoughtful, vibrant, contemporary and healthy places. He has over a decade of experience working with public and private property development companies in Australia and overseas, and is also the founder and publisher of The Urban Developer.