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The Great Divide

Property prices are not waning and land is at a premium, making it the perfect time for investors to consider subdivision to bolster their assets and cashflow, writes Sally Lindsay.

By: Sally Lindsay

1 August 2021

Subdividing a property can be a painstaking (and pricey) process. But the potential equity made from an existing property can be significant; and those who can afford the $150,000 plus for such a project are likely to be rewarded.

In Christchurch, a client of land surveying firm Survus recently made a net gain of $200,000 by subdividing the land at the back of their existing rental house and selling the vacant lot.

“This had no effect on the rental yield of the house but provided a good equity boost for the next purchase,” says Reuben Frizzell, Survus office manager.

North Shore couple Kim and Larry Gosden, who have several investment properties, subdivided a section off the back of a 1,000m2 Takanini rental they owned, about three years ago, for a $170,000 gain.

Without hiring a consultancy company to oversee the whole process, the couple used only a surveyor and geo-tech engineers and arranged the site works and services connection themselves. The project took about 18 months and cost $130,000. Kim Gosden says Auckland Council was helpful but it was still a frustrating process, with too many separate departments having to be involved.

“The whole process needs streamlining.”

While it has become a bit harder, a bit more complicated and takes longer than it did a couple of years ago, subdivision experts say with property prices holding up, it pays off.

The biggest traps are understanding upfront what can and can’t be done with a site and what the costs will be throughout the process.

Right at the start, bringing expert consultants – architect, planner, civil engineer and surveyor – on board is the key to making it pay off.

Each council throughout the country has different and complex subdivision rules; earthworks and services are expensive and consent applications time-consuming. For the sake of brevity we’ve concentrated on Auckland and Christchurch for this story, but rules will be different in each area.

First Steps

Thomas Ward and Jess Driver of Auckland-based I Am Developer say the first step in any subdivision is site assessment.

“Often investors don’t know the options they have with the land they want to subdivide,” says Ward.

It comes down to understanding the rules around zoning in the area your property is located. Auckland’s Unitary Plan allows subdivision in the single house, mixed housing suburban, mixed housing urban and terrace housing and apartment buildings zones. Each zone has slightly different rules.

If an investor is subdividing off a section only under a subdivision resource consent in the mixed house suburban zone the minimum lot size is 400m2 and in the mixed house suburban and urban zones 300m2 will be required. If a joint subdivision and land use consent is obtained showing where a house will sit on the site, its design, how outdoor living space works, the outlook, amenity and access for vehicles then minimum lot sizes go out the window.

“The way Auckland Council put it to me is ‘good design will dictate density’,” says Ward.

“If an investor’s architect can come up with a clever and efficient house design that meets development controls, such as height to boundary and maximum building height and it sits on 150m2 they will be able to subdivide to that level.

“This is how eight terraced houses on one site have only 120m2 of land each.

In Christchurch the residential suburban zone has a minimum size of 450m2 for a vacant lot and 400m2 with building consent; residential suburban density transition requires 330m2 for a vacant lot, and 300m2 with building consent; and residential medium density zones have a minimum lot size of 200m2 when vacant, and no minimum size when undertaking a subdivision in conjunction with a building development as long as the house design complies with the Christchurch City Council’s built form standards.

There are other inner-city zones which have differing density requirements.

Rule Differences

Ward says many investors don’t understand the slightly different subdivision rules.

“They can create an empty lot with just a resource consent or with a joint resource and land use consent they can create extremely small lots.
“What they do depends on their longterm goals. If cashflow is the priority it is better to subdivide for three or four-bedroom rental units and if capital gain is the main aim it is probably better to create empty lot titles and sell them quickly to realise equity.”

Applying for subdivision is the first of several big milestones. In Auckland the council’s processing timeframes have been pushed out. Ward says as soon as more than one internal council consultant has to look at a consent application it is deemed as complex and pushed out from 20 to 40 days to process.

“It is now blanket policy.
“Auckland is short of building sites and housing and the council needs to do something to speed up processes. If an investor or their consultants don’t put a good level of pressure on the council then things easily slip. Consent applications can be put in the ‘not so urgent’ pile and planners deal only with the ones where they are getting a bit of flack.”

Ward says there is definitely an art to being

“the right level of annoying”

After resource consent is granted in Auckland it splits into two different pathways. The first is applying for a 223 certificate to establish the new legal boundaries and land transfer plans that get lodged with LINZ for new titles.

“It is reasonably straightforward,” says Ward.

Next is the 224(c) certificate, which is essentially services – power, water, data, stormwater and wastewater – and access to the new lot.

“This is where it starts to get a bit complicated. Every new site created has to have public stormwater and wastewater connections up to one metre within the boundary – not something everybody understands when investigating whether their site is suitable for subdivision.”

Wastewater is easier to deal with as it can be pumped uphill but the authorities don’t like stormwater being pumped. Not all areas of Auckland have public stormwater lines either, so when putting in the services a line might have to be taken 60 metres up the road from the new lot.

“It can cost tens or hundreds of thousands of dollars in infrastructure if an investor’s consultants don’t get it right. It is one area where the budget can blow out if the cost have not been allowed for,” says Ward

After that comes onsite works and it can get complicated even for something as simple as a driveway, for example. If it is shared, it becomes a common accessway and a separate consent application has to be made. If vehicle crossings are needed then Auckland Transport becomes involved and traffic management plans might be required as subdividers can only legally do work within the property’s boundary.

Time Consuming

Ward says it used to be that a subdivision could be comfortably completed within six months but it is now eight to nine months.

The simplest subdivision will cost about $150,000 in Auckland while Frizzell says a standard subdivision creating a vacant lot in Christchurch is between $75,000 and $95,000. Basically, the more complicated the more costly the development.

Ward says from an investor’s point of view it is looking at the equity gain that can be made with a new title.

“Generally, the costs of subdivision are well worth it. Inner-Auckland sites are going to have bigger gains as the costs are relatively the same for Kingsland or Ōtara but the land is worth more.”

He says further south the key is to create as many titles as possible.

“Say it costs $200,000 to subdivide a site into an extra one or two titles, it is not going to be $400,000 to make three. The costs do not double. Every additional lot created becomes slightly cheaper.”

Minor dwellings have also come into the subdivision mix. In Auckland minor dwellings are only allowed in the single house zone and the size is capped at 65m2 gross. As it stays on the same title, Ward says investors in most cases would be better off subdividing.

In general, a minor dwelling in Christchurch has to be on a site in excess of 450m2, have access from the same drive as the primary unit, and can be no bigger than about 80m2.

“Although it hasn’t been done a lot in the past, and it is technically not intended under the rules, these can sometimes be subdivided once they are being lived in,” says Frizzell.

The rules are more relaxed for extra dwellings in Auckland’s mixed housing urban, suburban and terraced. Investors can have up to three dwellings on one title without resource consent if they comply with the regulations. The upside is not paying for extra subdivision costs but the downside is they have to be sold as one title.

Ward argues the extra costs to subdivide and go to individual titles are well worth it, even though it also involves paying an Auckland Council development contribution of $25,000 for each new house.

Development contributions combined with Watercare’s $14,000 standard development growth charge plus $1,500 for installing meters add up to more than $160,000 for four titles, without any other subdivision costs accounted for.

He says while it is quicker to create a new section, it is harder to sell and the returns will not be as good if a section and house is developed and there is no over-run on building costs. Timber framing costs, for example, have gone up about 45% in the past year.

“It is all a balancing game.”

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