Imagine you’re drawn to the picturesque charm of the South Coast of New South Wales, captivated by the idea of owning a piece of land that’s both large and unique. It’s a dream, but before you take the plunge into such a distinctive purchase, there’s a labyrinth of considerations to navigate. Our case study today delves into the journey of a client embarking on precisely this quest, shedding light on the intricate dance of due diligence, risk management, and securing the dream property.
The Initial Vision: Unique Land with Subdivision Potential
Our client had their sights set on a large block of land, a property that not only offered ample space but also came with the tantalizing potential for subdivision. However, the uniqueness of this property was twofold: it was laden with possibilities, but it also harboured several risks and unknowns.
Risk #1: Subdivision Potential
One of the primary risks was whether the land could be subdivided. While the agent spoke of potential, the legal reality rested in the hands of the local council. Council zoning, regulations, and bylaws played a significant role. To mitigate this risk, our client initiated contact with the council. The council’s input was crucial to understanding the property’s development potential, and the critical question lingered – was subdivision feasible?
Risk #2: Tree Removal and Fauna Protection
Furthermore, our client probed into the property’s flora and fauna. The presence of trees on the block raised questions about potential restrictions. Preservation orders, fauna protection areas, or limitations on tree removal could have substantial implications on land development. To safeguard their interests, our client inquired with the local council about any limitations regarding tree removal and potential fauna protection areas. The next step was getting quotes for clearing the property.
Risk #3: Services and Easements
The land, while captivating, also had practical concerns. Services like power and water supply became focal points. The location of power poles and water easement drains was scrutinized. The capacity to connect these essential services or the possibility of needing costly infrastructure through neighbouring properties needed clarification. A great resource is Dial-Before-You Dig to get a services plan for the block and its surrounds. The risk of being unable to connect or having to go through private parties could be costly or avoidable. Inquiries with the relevant authorities are essential.
Risk #4: Zoning and Building Regulations
In addition to these concerns, zoning and building regulations couldn’t be overlooked. Bushfire danger zones, flood-prone areas, height restrictions, and dwelling types were part of the intricate puzzle. Understanding the property’s classification under local zoning and regulations was a paramount factor. Council engagement was a necessary step to gain clarity on these elements. Was an intended design going to create a community challenge or acceptance? Good design and planning can make a world of difference in getting buy-in from neighbours, councils and other stakeholders.
Risk Management Through Option Agreements
With these risks looming over the purchase, our client wisely explored an option agreement. This contract offered the right to purchase the property at a predetermined price in the future. This allowed time for thorough due diligence, council approvals, and engagement with additional consultants. The option provided a safety net, securing exclusivity and a locked-in price. This is a clever methodology to derisk a purchase while providing vendor certainty. At the end of the option, the property would settle at the nominated price and agree settlement period.
Additional Considerations: Financial Realities
The use of the option agreement was not only to secure time for thorough inquiries but also to set a price that both parties found comfortable. An option does cost typically anywhere between 1% and 3% of the purchase price – sometimes just an agreed fixed price can succeed. There must be a consideration paid. However, beneath the real estate agent’s optimistic presentation lay some unspoken downsides. For instance, the property incurred substantial land tax per annum, which was a new anomaly, as it was not in line with house and land prices within the region. This ongoing cost posed a significant financial risk, impacting the overall investment.
Moreover, identifying essential services through Dial Before You Dig was crucial. This process uncovered the quotes for connections, including council and private sewer, clearing the block, town planner advice, and the often lengthy council applications and waiting times for approval. These costs were significant and couldn’t be overlooked. The risk of moving forward without council approval was immense and could have severe financial repercussions.
The Vendors are usually driven by greed and fear. At the start of a campaign coming into a holiday season (where the area is buoyant) is perhaps not the best timing. This strategy works better when the sales process is stalling, the vendors have started to get apprehensive or have a near financial commitment such as the land tax cost. Typically residential sellers (and some agents) are sophisticated or motivated enough to engage in a delayed settlement. The agents for a standard sale to realise commissions, while a vendor wants a standard deal done – especially if they have committed elsewhere or have time pressure. Nonetheless, as a de-risk strategy for a purchaser, this is a powerful approach.
Conclusion: Safeguarding the Dream Property
Purchasing unique land on the South Coast of New South Wales was far from a straightforward process. It was a dance through a minefield of risks and uncertainties. However, our client emerged from this case study with a vital lesson in risk management. The South Coast dream remained alive and well, protected by due diligence, cautious negotiations, and a clear understanding of the counterparty risks.
When it comes to realizing your property dreams, it’s not just about the destination; it’s about how skillfully you navigate the journey. A the end of the day all-in costs must be considered for any due diligence and construction costs – is it worth it? In this case yes, the end game was to build two properties and sell one thereby reducing the cost of ownership on a brand new property in a sensational near beachfront position. It is all about the end game.
