Small development is the new renovation project

Small development is the new renovation project

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Once upon a time, getting your hands dirty with a cosmetic renovation was considered a fairly ambitious method of property investment for most, before becoming fairly mainstream. These days, taking on a unit or townhouse development is increasingly common – and profitable.

I was in Melbourne for a holiday over the festive season and spent a full day exploring the city’s far-flung reaches. I’d never ventured much further than the CBD, so it was a great opportunity to appreciate the full extent of Victoria’s capital.

And wow, is that beast spread out. Anyone looking for a clear illustration of how urban sprawl looks in reality need only drive about 45 minutes in any direction.

Generally speaking, it’s accepted that urban sprawl has more negative impacts than good. It isolates people from services, transport and employment hubs for the sake of cheaper and more accessible housing. New pockets of dwellings are typically poorly planned also, resulting in a multitude of problems down the track.

There are good and bad examples of outer suburban development in Melbourne, as well as other capital cities. But as I was driving around last week, my mate pointed to one of three new housing estates we’d passed.

“Who would buy there?” he asked quizzically. “It’s so far from anything and there’s nothing around but a bunch of houses that look identical. What’s the appeal?”

The answer is difficult and probably a bit case-by-case. Price is probably a big one. Proximity to family members is another, hence these emerging suburbs tend to be popular with migrants who prefer to be closer to relatives.

But the most common response is that there’s simply nowhere else to go. Inner and middle ring suburbs can’t accommodate new dwellings so people move further out. That’s how sprawl happens and it can be problematic to say the least.

That’s why government authorities have in recent years placed a stronger emphasis on greater densities closer to cities, in a bid to encourage infill development. In essence, planners want people with a house on a massive block to realise some of the potential in their land – say, a few townhouses or villa units.

That adds to local supply, helps meet demand and slowly reduces the need to continue pushing out, out, out.

It’s no secret that populations in capital cities are exploding. The need to provide more housing – and faster – is very real. The consequences of not doing so could be significant and expensive. That’s why governments in many areas are easing zoning restrictions, cutting planning red tape and moving to fast-track approval timeframes.

What does this mean for investors? A big profit potential, particularly if you own a piece of land that’s about to become prime for development.

Whether it’s increased density, a reduction in minimum lot sizes and setbacks, the opportunity to add a granny flat or guaranteed assessment turnarounds, it’s clear that authorities in most major areas are embracing development.

And I’m not talking just major apartment high-rises. Small development is the new thing – infill projects that don’t place a massive burden on existing communities but help to boost dwelling supply and, as a side benefit, aid rejuvenation.

As I explained this to my friend, he asked me how realistic it was for average investors to contemplate a project like this. I guess, like many, he wondered if maybe four townhouses or side-by-side villa units would be beyond the capability or comfort zone of a mum and dad with a few investment properties.

Not at all. Sure, there’s a lot to learn, but API has chronicled the journeys of countless small developers in the past year, when this trend began to really take off. We’ve followed the learning process, the ups and downs that exist with this and any form of investment, the approach to getting a project off the ground and the massive payday that can await.

Our latest issue includes a profile of a rookie developer whose first project landed him a $180,000 profit in just 12 months. If you’ve been a buy and hold investor recently, waiting around for natural capital growth, tell me that sort of figure isn’t enticing!

The key before jumping in with any project is to be educated and prepared. But until recently, there have been few – if any – resources for investors keen to take on a development. That has all changed.

The opportunities for small developments and the rising popularity is part of the reason we decided to launch a new magazine, Profitable Small Developments. The first issue of the digital-only title has just gone live and, as a contributor, I’m pretty excited about what it offers.

We’ve jam-packed it with planning news, development hotspots, case studies, industry news and much more. It’s worth a look. Check out www.psdmagazine.com.au

Shannon Molloy is the deputy editor of Australian Property Investor magazine.