Do you sometimes drive past a property and regret not buying it when it was for sale several years ago? Many people would’ve bought more properties 10 years ago had they known these properties would double in value, but what does this mean for you today? Would you like to own a property development site that will cost you much less than it will be in the future? If yes, then I guess you should consider land banking.


Property investing


Land banking involves securing future property development sites at today’s price. Many property development companies buy farms or greenfield sites to make sure they have enough stock for future property developments. They would rezone the land, put roads and infrastructure, develop a subdivision and sell individual lots. However, while doing this can make big profits, it can also be a downfall if real estate values drop or interest rates blow out.


Land banking

 

Land banking can be a great strategy for small property developers if you can keep your holding costs to a minimum. Instead of buying a huge block of vacant land, you can buy old houses which are close to their “use by date” on well-located lands with potential property development in top suburbs. See if you can cover holding costs from the rent and proceed with property development in the future.


We all know land appreciates, so buying a property that’s close to its land value can be a good strategy. You can obtain property development approvals and add substantial value to the site by developing a subdivision, apartments or townhouses. This will make the site more attractive to developers and you’ll have the option to sell it for a profit or refinance and continue with the property development process.


Buying in a soft market can also be good. As the market moves, owning land in a prime location with a market that’s growing stronger will allow you to make a substantial profit. This is particularly effective in inner and middle-ring suburbs of capital cities where there’s not a lot of vacant lands left but an increasing demand for developments from smaller households such as young professionals and older people who are downsizing.


With the limited supply of property development sites, a flat property market and a demand for medium-density housing, it may be time for successful land banking. Keep in mind though – as with all investments, it also comes with a level of risk. Check the property size and dimensions and see if the property you’re eyeing is suitable for development. Can it be leased? Is it flat or does it slope? Are there too many trees? Which way is it facing? What type of neighbours and properties are surrounding it? Check the available utilities, accessibility and title of the property. Are there any easements, covenants or development overlays? These are just some of the things you would need to consider.


Property development accounting


There’s plenty more to talk about land banking and property development. Give us a buzz and we’ll look into your unique circumstances. Let’s put our minds together and figure out the best way to grow your wealth!


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