Would you believe up to 70% of the added value, without even building it?
That’s right.
In many cases, an approved development approval (DA) can be lucrative if the vendor’s version of potential aligns with the buyer’s dreams (and with their budget – as DA’s have a five-year lifespan). The idea here is - do all the groundwork by getting the strata and council approvals in place, so the buyer can start their development straight away.
In other words, “Sell the dream…”
How much impact does a DA have on property value?
I did some research to see what kind of evidence there is of this being the case using RP Data over the last few years. I started looking at apartments that sold from North Bondi, down to Coogee and across to Randwick.
I focused my attention on 108 apartments utilising different development potential, unrenovated, renovated, attic levels, roof conversions, gardens on the title, to see if there is any direct correlation between the sale price and DA history.
There does appear to be a common trend starting to develop amongst small-medium scale development sites in the Eastern Suburbs of Sydney.
The average sale price for a top floor two-bedroom, one-bathroom apartment was $956,000, while the average sale price of a similar apartment with DA approval to build into the roof was $1,169,000.
Several apartments that had gone through the pain and cost of building up into the roof (assume the build cost $225,000), sold on average for $1,455,000.
It does appear that there is a clear value add having a DA on your apartment of up to 70% of the added value (roof level) - without building it. Some ground floor apartments added over $290,000 by adding the common garden to their title for their sole use.
So, what can we take away from this investigation?
From my small sample of apartments in the Eastern Suburbs, it looks like there is a clear ‘value-add’ to putting a DA in place for a potential development site, with the bigger rewards for larger higher yield sites; however, a larger investigation would warrant more accurate results.
I will note that the above statistics have not considered the actual costs of the development approval, which may vary quite significantly. I will investigate those costs more closely in upcoming blog posts.
A few considerations…
There are a few important factors to consider before you decide to go ahead:
The attractiveness of having an approved DA for the buyer is less in the cost of having it approved but rather in the time and hassle spent getting through the process with council.
Think carefully about the specifics of your DA. The buyer may wish to make modifications to the approved plans using a Section 96 modification. Whilst this is possible (as long as the new plan is substantially the same development), it can be a tricky process to navigate.
Be familiar with your local council requirements. You can find information on Waverley Council’s requirements here. Staying within the guidelines will save time, whilst unusual proposals may take years.
Have questions about whether an approved DA could add value to your strata property?
You should only obtain a DA to sell if you are confident it will add value to your property. If unsure, I can advise you about buyer trends in your area and if a DA is worth your time and money. Email warren@buyairspace.com.au or call 0415 254 420. #buyairspace