The three most common first time property developer mistakes: Site selection
Each week I receive phone calls from people who have started a property development and then fallen into trouble.
I can't help taking these SOS calls from fellow developers, even if we are not likely to do business together. Talking to them gives me a little perspective of issues others are facing.
I've noticed a pattern.
There seems to be three different areas in which property development issues fall:
- Site selection
- Team selection
- Not understanding the development process
This week, we'll look at the first area of contention - site selection.
Site selection in my opinion, is the most important process. If you don't choose the right site, then issues can snowball and no matter how good your team of understanding of the development process, you may not make up for the costs of buying the wrong piece of land.
The last call I received was from a lovely man called Sebastian, who I chatted to for more than half an hour about his development site. I don't normally offer a 'sob on my shoulder' service but I do honestly care about others and find it hard to ignore a fellow developer in need.
Sebastian explained that he'd purchased what he thought to be, a very good development site. It did tick a number of good criteria 'boxes' but then he told me that after he'd purchased the site, that council had 'all of a sudden' deemed it to be in a flood area. He said when he'd purchased it, the Section 149 Planning Certificate in the Sales Contract had said it was not flood effected, although he had noted a creek a couple of kilometres away.
What Sebastian didn't know was that council had commissioned a flood study in this area. A flood study is usually commissioned out to a surveying company and can take months depending on the complexity of it. It’s a comprehensive technical investigation of flood behaviour for a particular catchment, river or creek. It is the technical part of the floodplain management process for councils.
By the time he was ready to lodge his DA, the study was completed and his land had changed to non-flood effected to flood effected. Council would not allow additional dwellings (over and above the one house already on the large piece of land) on the land as in their words "it could add pressure to council's systems IF a flood was to occur". They did, after further consultation, agree to review plans where the dwellings were built to a certain height (over 1.5 metres) and of course this would heavily impact on the development costs. The other major impact was on the potential end values of the new dwellings being located within a flood zone.
So just how can you avoid this? Well, Sebastian's initial observation was good as he did note the nearby creek. But when he reviewed the planning certificate he let down his 'property developer' guard and did not question it. This is extremely common and some will say they rely on council's information. Never rely on council's information, do further research.
Always check the date of the 149 Certificate, if it's not very recent, like within the last few weeks, request the vendor update it. Remember within a few weeks a flood study could be completed and changes made to council flood areas. Your solicitor or conveyancer should be onto this for you as well. If Sebastian had made an enquiry with council's flood engineer, he could have asked if there is likely to be any change to the flood zoning in the near future. The engineer would be aware of any investigations or studies being conducted in that area.
Because we know the areas we work in so well now, we bring a level of experience - managing over 80 developments - to the table but despite this we always conducts a thorough site investigation, inspection and review of council documents and the sales contract before we present a development site to our clients.
Stay tuned next week for part two...
