Subdividing land and building two properties - what to know

If you have a big backyard that you’re tired of maintaining, or you simply purchased a large vacant block - subdividing and building two properties might be the move for you.

While it might sound easy enough, subdividing in itself is quite a big job. It’s likely to eat up your time, money, paperwork, and maybe even patience. Once subdividing is out of the way, building a house is an endeavour of its own. Despite the process of subdividing and building, it can be a prosperous venture.

Let’s discuss how you subdivide a property, why you may want to, and more.

What is subdividing land?

A subdivision is when you divide one block of land into two or more blocks. The most common type of subdivision is a residential or freehold subdivision, which involves splitting one piece of land, known as a lot, into multiple lots. The land could be either a torrens, strata or community titled block - this will depend on who owns the land and how it’s managed.

If you own a house or purchased a vacant plot, you’re likely going to be looking at a torrens title. This type of title is common when there are no shared or common areas like driveways or other facilities. Strata and community titles may come into play when there are shared common areas, which is usually seen with units and townhouses.

There are generally five types of subdivisions in Australia:

• Freehold/residential subdivision: Dividing one existing block into two or more separate titles
• Strata subdivision: Dividing one block into apartments or units
• Bare land strata subdivision: Dividing one block vertically where the block that will be divided hasn’t been built on yet
• Battle-axe subdivision: Dividing a block to be shaped like an axe so that a new home can be built at the back of the property
• Development subdivision: Slicing up one large plot of land to allow for multiple titles

So basically, subdividing is when you slice up a block into two or more separate blocks, each with their own title. Depending on you situation, you will likely need to look into one of the five types of subdivision mentioned above.

Let’s say you’re looking at a residential subdivision. Once you’ve completed the steps and split the block into two, you may be wondering what you can do afterwards. A few options could include keeping the lot vacant, building a property on it, or selling the vacant land for a new owner to take charge.

Why would a property investor want to subdivide?

Subdividing can be an attractive option to people with a large backyard that they don’t need, want or use. Or maybe you’re a developer who wants to divide one massive block into multiple smaller blocks. Whatever your reasoning, there are a few general ideas behind subdividing.

The main reason for subdividing a property is likely going to be for generating a profit. If you sell a plot of vacant land after subdividing, you could be looking at a profit margin of 35% to 45% according to CS Town Planning.

Alternatively, if you decided to keep the new block, you could increase your equity. This will depend on how much the plot is worth on its own versus how much it was worth as one block. It may also depend on whether you decide to build a house on the new block or keep it vacant.

If you decide to keep it and build, you could rent out the new house as an investment property. This could see your passive income increase if it’s positively geared, or your taxable income decrease if it’s negatively geared.

Ultimately, there are a few reasons one might want to subdivide a property. The reasoning may depend on what you decide to do with the block once its subdivided, your financial goals and so on.

How to subdivide a block of land

The steps involved when subdividing a lot of land can vary depending on where you live, the type of block (torrens, strata or community titled), and any other influencing factors.

To give you an idea of what steps you might need to take, the process generally should generally follow these five steps:

1. Submit an application for a permit with your relevant local council
2. Your permit will be approved (or rejected)
3. Construction work commences following the conditions of the permit
4. Once all the work is done, a licensed surveyor will need to prepare and review the new survey plan (SP) to identify the new block
5. If the council/governing body is satisfied with the subdivision, they will approve and seal the new SP and issue a new land title

According to CS Town Planning, the process of subdividing a block usually takes between 12 to 18 months. If you decide to build a property on the new block, this timeline is likely to extend even further.

How much does subdividing cost?

The cost of subdividing your block will depend on a range of factors including the type of subdivision, location, quality of the block and other influencing factors. When you add in any other construction costs - say, if you build a house - you are likely to be looking at a large bill. According to CS Town Planning, subdividing could cost you $40,000 for a simple backyard subdivision. If you’re looking at a development subdivision, for example, the costs could be much greater.

Costs you may need to account for include but are not limited to:

• Permits
• Plans
• Construction work
• Installing underground drainage
• Installing electricity connections
• Installing fences
• Connecting the block to sewage and water
• Removing trees, rocks, or other
• Levelling the block
• Lender fees (where applicable)

Pros and cons of subdividing

With an understanding of how subdividing works and why an investor may choose to do so, let’s wrap up some of the most notable pros and cons.

Ultimately, whether you choose to subdivide or not will come down to you. If you’re not sure whether subdividing will end up being worth it for you and your property, consider speaking to an independent financial adviser or a local real estate agent to get a better understanding of your property market.

Construction loans offered by loans.com.au are perfect if you plan to buy land and construct a home, or if you're completing extensive renovations to your existing property. To find out more, get in touch with one of our home loan specialists.

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