1. Client Brief
A busy professional couple, referred by their financial planners, recently came to Capital Property Advisory (CPA) for buyer’s agency services to assist them in acquiring a development site. Seeking to expand their property investment portfolio, the couple was finding this difficult to achieve, being very time poor with two demanding jobs. After we provided an enhanced understanding of CPA’s breadth of expertise, the couple engaged us to provide complete end-to-end development management services – further freeing up their time to get on with the rest of their lives. Having undertaken a Perth residential development in the past, the client had a good understanding of the way the property development process works and CPA worked closely with them throughout the process in order to fulfill their expectations.
2. The Property – Sourcing and Negotiation
Our acquisitions team sourced and secured a development site, negotiating a very competitive price of $584,000. As always, CPA looks to acquire property for clients in areas we feel will outperform the wider Perth property market – whether or not the market is in a growth or contraction cycle. When the development site was acquired in the first half of 2018, the median house price in its suburb was $770,000. The median house price in May 2020 was $750,000, representing a 2.6% decline since acquisition. During the same timeframe, the Greater Perth median house price fell by 7.6%. Despite the small decline, this is evidence of CPA’s expertise in acquiring properties in areas which outperform the market as a whole.
3. Design and Subdivision
CPA worked closely with a design and drafting team as well as the appointed surveyors to look at potential outcomes, before concluding that the most profitable development was three, four-bedroom townhouses sharing a common driveway. Our intensive development research and investigation process allows CPA to review all potential development options in line with council and planning regulations, appropriate site designs, sub-market supply and demand, and potential feasibility outcomes to ensure the design is the most appropriate for the client, site and market.
4. Development Outcome
The resulting design and project feasibility has potential to return a very healthy $250,000 over the 23-month project timeline, should the clients proceed to sell upon completion. However, with the client’s initial intention being to develop and hold their investment, CPA ensured that leasing the three villas to market would also provide an attractive return. Interest from the rental market has been overwhelming with the three units projected to lease in excess of initial forecasts. Gross yield on the investment is projected to be close to 5% p.a. based on total development costs. Our clients are ecstatic with the project outcome and already looking for their next development opportunity with CPA.
|Estiimated Development Costs||$1,832,339|
|Potential Sales Income||$2,085,000|
|Potential Profit Margin||$252,661|
|Margin on Development Cost||13.79%|
|Internal Rate of Return||17.03%|
|Project Timeline||23 months|