Tips and traps of property development

By Scott McGill - August 23, 2017

Property remains a target for consideration with the ATO, and there is increasing engagement of people from all walks of life in “property plays” that often involve some level of improvement, if not complete development.

With the real estate markets in Sydney and Melbourne experiencing sustained growth in residential property values, almost every owner has experienced the upswing in value, and many are considering how they might now realise this value. Some may simply look to downsize and cash up for retirement, while others may look to subdivide portions of large blocks, perhaps redevelop or build a duplex: selling one and keeping the other.

Perhaps since the introduction of Capital Gains Tax in 1985, industry and advisors seemed comfortable that the old revenue cases were easy to understand, with the CGT regime dealing with the rest; punishing those who sold within 12 months with no discount.

A continuing boom in property in Australia has resulted in both more focussed efforts to maximise value on any property investment, and existing property owners putting properties into ventures to develop them.

Increasingly, homeowners are being approached by developers either individually (or in a line with neighbours) to realise prices that many would not have anticipated. As a response to this, neighbours are starting to work together in key areas to realise the best value for themselves, either by obtaining the development approval (DA) and selling as a package, or even undertaking the development themselves – perhaps partnering with a builder.

The rewards are potentially large, but with all rewards comes risk. Those considering such an undertaking should tread carefully to avoid those risks, as well as a potential disaster.

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