what is property development?
A property developer is simply someone who adds value to a property and more than likely re-sells it. If they hold and lease the property, they are then classified as investors. Both can be done by anyone – not necessarily millionaires. It is also by far best and most successfully done by fair & ethical dealing – which is exactly what Urban Estate Developments has grown on.
Examples of how a property developer ‘adds value’ include:
Properties developed by someone can be one, or a combination of:
A property developer is not a ‘builder’. The ‘developer’ is the owner or controller of the land, and usually engages the services of a ‘builder’ and others for just the construction. This can sadly be the most volatile relationship in any project. At Urban Estate Developments however, our builder is our own sister company, and we therefore alleviate a multitude of disputes & losses that often occur between developers and builders.
Urban Estate Developments is in fact your partner in virtually all stages of property development. Our purpose is to take developments off the ground, or resolve problems for what is already off the ground.
Examples of how a property developer ‘adds value’ include:
- Rezoning and reselling your own or someone else’s land
- Obtaining a DA for a unique development that was not thought of before
- Building and long term leasing a complex of commercial or residential units
- Refurbishing an existing building, and increasing its use and capacity
- Clearing an under-utilised or under-capitalised land (such as an old 3-storey building in the middle of a CBD) and rebuilding for higher yield
- Amalgamating neighbours and selling land for much greater value
Properties developed by someone can be one, or a combination of:
- Residential – such as duplexes, townhouses, units, and high-rise apartments
- Commercial – such as retail shopping centres and offices
- Industrial – such as industrial units and factories
A property developer is not a ‘builder’. The ‘developer’ is the owner or controller of the land, and usually engages the services of a ‘builder’ and others for just the construction. This can sadly be the most volatile relationship in any project. At Urban Estate Developments however, our builder is our own sister company, and we therefore alleviate a multitude of disputes & losses that often occur between developers and builders.
Urban Estate Developments is in fact your partner in virtually all stages of property development. Our purpose is to take developments off the ground, or resolve problems for what is already off the ground.
TRUTH ABOUT property development?
The truth about property development is that property development is very hard, and sometimes disastrous. Even the most established and professional developers have been known to lose their most prized possession – their own family home.
We may hear about some friend making a “killing” out of property development, and envy their final profit. But seldom do we hear how difficult the project may have been. Let’s consider an example scenario of Mr. and Mrs. Brown.
We hear that Mr. and Mrs. Brown did a 12-unit development in the inner city, and made $800,000! But following is what we never know:
While this story is obviously a “horror story”, all the events and scenarios are realistic and easily possible. Property development is indeed HARD. Almost every property developer experiences one or more issues.
The key point we observe in this story is that although they will now be well and truly experienced, Mr. and Mrs. Brown really needed one or more caring & unbiased mentor(s) to guide them through the pitfalls of the development process and not face as much heartache or the near financial demise as they did.
This is where services of Urban Estate Developments and our associates come in. Of course we would have welcomed – and even encouraged Mr. and Mrs. Brown to manage their own development, but at the times of need imagine how many of their problems would have been solved quicker, cheaper and easier by us and our associates. Imagine how much more they would have learnt, and how many times the fee for our services would have paid for itself when we take into account the numerous losses due to delays.
We are keen to be a part of your project regardless of what stage you are at. We will be pleased to be of assistance, especially if your project is in difficulty.
We may hear about some friend making a “killing” out of property development, and envy their final profit. But seldom do we hear how difficult the project may have been. Let’s consider an example scenario of Mr. and Mrs. Brown.
We hear that Mr. and Mrs. Brown did a 12-unit development in the inner city, and made $800,000! But following is what we never know:
- Mr. and Mrs. Brown spent over a year searching and investigating development sites to find the right development site for their intended project. They paid numerous fees to their architect(s), valuers, etc on many potential purchases that they couldn’t even proceed to buy.
- They finally find their perfect site and place a non-refundable 10% deposit, only to have their finance provider come back with some bad news that they will have to stump up a 30% deposit for their purchase, not 20% that he almost swore-by only last week. Following 4 weeks of tough negotiations with their financier, agonizing pressure from the real estate agent and vendor’s solicitor, they finally secure funding to purchase their development site, and proceed to settlement.
- They desperately get their architect and surveyor started on the development site, because they are now paying huge sums of interest for dirt and grass. Sadly, they are delayed by 8 weeks because their surveyor had family problems of his own, and just as the survey was completed their architect went on holidays. Of course, no one pays their development site’s interest in the mean time!
- They had to have numerous meetings with their local council, who objected on a number of items and required a number of changes to plans which their architect implemented over 3 weeks for yet more money.
- They finally have their DA lodged. It has already been 16 weeks, and they sit and wait for another 4 weeks before anything is heard from their council. Meanwhile, interest rates have started rising.
- What they hear from their council is bad news. 4 neighbours oppose their development. It then takes a lot of negotiation with neighbours, more changes to the plans and yet more architect fees to resolve all issues, and despite their greatest efforts to speed things up, another 8 weeks scream by, and interest rates go up further.
- The amended plans go through council over another 12 weeks, and SUCCESS! They finally have their DA consent. Their land is now worth substantially more, and Mr. and Mrs. Brown finally get some reward for their hard work. But it’s not all good news. Their DA stipulates a number of Section 94 fees (for use of local facilities and infrastructure by the people who will eventually occupy their developed units) amounting to nearly $160,000 – which must be paid prior to construction.
- Their financier meanwhile thought they had not progressed with the development project due to neighbour issues, and has discarded all the paperwork! Their loan pre-approval has expired, and the whole lot takes another 4 weeks and 2-inches of paperwork to re-obtain finance approval. This time, the financier offers them even less, because apparently their development’s Gross Realisation Value has dropped (thanks to tightening of lending criteria). Mr. and Mrs. Brown, now fed-up and desperate to get their development off the ground, put in yet more funds just to get things started.
- Mr. and Mrs. Brown are now required to obtain their CC (Construction Certificate). In pursuit of satisfying their neighbours, they managed to make changes to their balcony sizes that don’t meet Australian Standards! Yet again, its back to the drawing board, yet again 4 more weeks with their architect for yet another fee.
- Mr. and Mrs. Brown then engage the services of their builder, who has also raised his contract price thanks to changes to labour rates! Again, they go through frustrating negotiations, contract changes, and add YET MORE money to the project, but FINALLY – construction work starts.
- Their builder’s earthworks contractor excavated half the foundations, and disappeared to Queensland for some lucrative 2-week contract! He doesn’t reply to any calls or messages. Meanwhile it rained, and their water-logged footings could not be concreted for another 2 weeks. Slowly but surely – after a few more days of frustration, their builder finally made some progress, and got things started again.
- 16 weeks later, their builder has almost reached ‘lock-up’ stage (when external walls, windows, and doors are all completed). They have their council certifier come and inspect the project, and shock horror – the builder has made a critical error with the structure! Mr. and Mrs. Brown engage the services of a Building Consultant to see whats going on in finer detail, and things get worse! The consultant finds substandard workmanship in many places that affect the building’s functionality. Their builder desperately denies responsibility, closes the project and leaves. Mr. and Mrs. Brown are left with only one option – litigation.
- After 3 months and $25,000 worth of legal action, they are finally released from the building contract, and their builder is ordered to reimburse all costs for the mistake. But the builder cannot come up with the funds, and goes into liquidation! They are yet again back at square-one, again finding a builder, again negotiating all terms, and again organizing their finance. Meanwhile their former builder, “Mr. A Constructions” happily reappears 3 months later as “Mr. B Constructions”.
- Mr. and Mrs. Brown are forced to engage a new builder, one who originally had his tender priced high when the project started, but now he is the only one who is willing to complete the project. They end up paying a premium to the new builder for fixing all the problems of their former builder, but are at the least lucky to now have a more competent builder running their project. Another 6 months later, they finally have their building complete. But by now, they have used up all their savings, virtually ‘maxed’ their borrowing capacity on their own home (which was paid off before they started!), and now have very little funds available to complete the services, landscaping & subdivision. They turn to their bank for help, but are denied any reprieve (being already “overcommitted” in face of further tightening lending criteria).
- Mr. and Mrs. Brown, already reeling from their construction experience, are now under pressure to complete all services and landscaping to have any chance of obtaining the Occupation Certificate for their block of units. They are forced to sell one of their vehicles, and borrow funds from friends. After yet more frustrating delays from the weather and their landscaper, they finally have their project complete. Mr. and Mrs. Brown are now at the brink of bankruptcy, facing even more interest rate rises, extremely worried about losing their home of many decades, now fear walking away with nothing but a sizeable debt to their friends.
- Their project is now complete. The council certifier has inspected the building, and much to their joy, has declared the project satisfactory. He does however ask for one missing certificate, which unfortunately had to be obtained from the former builder’s plumber who is on holidays for 3 weeks!
- The plumber, who didn’t get paid by the previous builder, finally returns from holidays and demands the large fee that was not paid, but thankfully – does provide the much needed certificate. Mr. and Mrs. Brown finally have their project complete. But hold the celebrations…
- Mr. and Mrs. Brown are now at the stage of “Strata titling” their units (subdividing into individually titled units). They have the final surveys carried out, go through having to take over 2 inches of paperwork to around 4-5 government authorities, battle to keep it all organised, pay YET MORE fees and wait on average 2 weeks for every stage, while still having to pay interest on loans. Finally, the are issued with their 12 individual certificates of titles (which their financier took – given that its their security)
- Mr. and Mrs. Brown are now able to settle on the sale of the 4 pre-sold units, finally have some much needed cash in hand to pay back to their friends and financier, and then proceed to marketing their remaining units.
- Just as Mr. and Mrs. Brown start to see some progress in the sales of their remaining units, bad news yet again! The government suddenly announces a major policy change that sent a wave of panic in the property market, resulting in sales of 6 of their 8 remaining units being repealed by buyers!
- After 18 months of no activity, interest payments and other holding costs eating up the proceeds of their first 4 units, things finally make a move in their favour. There is a sudden huge fall in interest rates and positive change to government policy. A new wave of optimism sweeps the market, and anyone NOT buying a property is branded ‘foolish’! With buyers falling over each other to pay OVER the asking prices, Mr. and Mrs. Brown sell 6 of the 8 remaining units within days, and decide to keep the last 2 as tax advantaged investments.
- It has now been a difficult 4 years, both physically and emotionally draining for Mr. and Mrs. Brown. But the time has come for their hard work to bear fruit. Mr. and Mrs. Brown have now sold 10 of their 12 units, paid off ALL their debts, have substantial surplus cash to fund a lavish lifestyle, go on a very well deserved holiday, and best of all - still hold 2 units DEBT FREE that are now paying them a strong & growing rental income for life.
- Mr. and Mrs. Brown now have quite a story to tell their friends. Of course, their friends see them go on that holiday, buy their flash new car, living a comfortable life, etc – thanks to what they see as the “killing” they made by “simply just knocking up a block on units”! Their friends are quite impressed by the “easy money” made in the few days it took them to sell the last 6 units.
While this story is obviously a “horror story”, all the events and scenarios are realistic and easily possible. Property development is indeed HARD. Almost every property developer experiences one or more issues.
The key point we observe in this story is that although they will now be well and truly experienced, Mr. and Mrs. Brown really needed one or more caring & unbiased mentor(s) to guide them through the pitfalls of the development process and not face as much heartache or the near financial demise as they did.
This is where services of Urban Estate Developments and our associates come in. Of course we would have welcomed – and even encouraged Mr. and Mrs. Brown to manage their own development, but at the times of need imagine how many of their problems would have been solved quicker, cheaper and easier by us and our associates. Imagine how much more they would have learnt, and how many times the fee for our services would have paid for itself when we take into account the numerous losses due to delays.
We are keen to be a part of your project regardless of what stage you are at. We will be pleased to be of assistance, especially if your project is in difficulty.