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Subdividing land: the pros and cons of subdividing the family home

For many people the bulk of their assets are tied up in their family home, which may sit on a quarter-acre block and has started to become a drain on their time and energy to maintain.

Selling the family home to downsize is an option for many retirees and semi-retirees. However, some prefer not to move from the location where they have lived for most of their lives, where they know their neighbours and feel most comfortable.

For these home owners, subdividing land and developing an additional home or two could be an option to help free up cash and add to their retirement fund.

So what needs to be considered when asking the question, ‘can I subdivide my property’?

The first step in the subdivision process is to determine the zoning and classification of the block. Residential lots are zoned with an R-Code, for example R30. This R-Code determines the minimum size of a block for any single residence.

You can find out your lot’s R-Code using Intramaps, which is accessible from your local government authority’s website. You should then check with the council what that R-Code allows. For example in the City of Cockburn R30 on an 800sqm lot allows for two dwellings.

Any qualified real estate agent, property investment specialist or surveyor can also provide this service.

Before you go too much further it is essential to understand your finances. The likely costs associated with property subdivision can be categorised into three key areas:

Construction Costs:
Head works, site works, power connection, demolition, asbestos removal and restoration of old dwellings. It can often cost more than $50,000 simply to liberate a lot of land in the subdivision process.

Consultant Fees
Design, statute fees and charges, strata unit entitlement, soil testing, surveyor fees, strata body establishment, planning and development project management fees. This process could cost $20,000.

Additional costs
Selling fees, conveyancing, council contributions, rates & taxes.

Ultimately, when subdividing land up to $80,000 is needed just to prepare a lot for subdivision.

From this point a decision is needed on whether to sell the land subdivision-ready, or to proceed with the subdivision process and develop multiple dwellings.

Any analysis has to clearly consider capital gain tax implications and its impact upon the feasibility of the project.

If the property is your principal place of residence and was purchased before September 1985, then a subdivided lot can be created and sold capital gains tax free. However, if a new dwelling is created capital gains tax will apply to the upside of the improvement.

If the property was purchased after September 1985 then the lot created may be subject to a portion of capital gains tax for any new dwellings developed and sold.

If you are nearing or in retirement you should also seek advice on any potential impact subdividing land may have on access to the full or part government pension.

It is very important to discuss the tax implications of subdividing land with your accountant prior to any decision making.

Once the finance equation has been resolved and the decision has been made to proceed with the property subdivision it is now time to consider who to use to get the job done.

Obviously if all you are producing from the subdivision process is a lot of land for sale then you could make do with a surveyor. If the site requires substantial development work to create the lot, then a development or project manager should be engaged.

After the property subdivision, if you decide to build then a suitable builder should be contracted because they can administer and provide all the other services required to complete the project.

For further information about subdividing land and the pros and cons of subdividing the family home, contact Investor Assist on (08) 9200 7200 or email us to learn more about the process and the options available to you.

Alternatively, download the Assist Kit and find out how you can get started on your property investment journey and find financial security through property.