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How to buy the perfect development site

Preparation to move quickly at the right time is crucial to making a profitable purchase

May 26, 2022

Investing in a development site is a strategic way to increase the value of your property portfolio.

The right piece of land can be a good passive long-term investment, attracting minimal maintenance costs and taxes with a high appreciation potential. But preparation is key to securing the right investment, says Jake Burrowes, senior executive, metropolitan and regional sales and investments - Queensland, JLL.

“Being able to assess, select and move swiftly to secure opportunities is vital to success,” says Burrowes.

Understand neighbourhood plans and precinct potential

Knowing about regeneration or development plans for the area you are investing in will help you assess the potential of the property. Check zoning, land usage and legal constraints for the property and precinct as these are usually binding. It’s also important to identify building lines, easements, topography, soil conditions and any physical limitations of the property to reduce the chance of costly surprises later.

“Be sure to have a good understanding of the area’s demographics, including whether there is proximity to schools or labour and employment hubs,” Burrowes says. “Look at any hindrance to traffic flow – access and egress – plus vegetation and environmental factors, as this dictates how land can be used or developed and what cannot be changed.

“Consider what infrastructure, civil services, utilities and public transport prospects will impact on future construction costs for any site you intend to invest in.”

Evaluate potential challenges

Use a variety of sources to help evaluate the potential risk and return of the investment.

Research from the Australian Bureau of Statistics, local valuers, local council, builders, research, and accounting firms are a valuable source of information as well as construction activity trends and inflation indexes. Unemployment figures, seasonality and rental trends can help forecast occupancy levels in the vicinity of your land parcel.

Make use of available technology and apps to leverage market insights and economic information. This makes it easier to check ratios, viability, and compare occupancy rates across many sites. JLL’s location analysis tools can assist to explore potential locations virtually and overlay data to easily visualise what you’re trying to achieve.

Vision and usage

“When looking at different sites, it’s good to have an idea of what could be built on that land, what the market needs and whether that aligns with how you want to invest. This needs to be considered in tandem with town planning considerations as governing bodies won’t consider market trends in determining what constitutes an appropriate land use,” says Burrowes. “For example, assisted living, aged care and healthcare demand will remain strong as our population ages. Residential, office, and data centres are also robust investments as digitally enabled businesses embrace remote and hybrid models of work.

“Mixed use metropolitan commercial living can provide good returns if done right. To make sure it’s right for you, consider the future positioning of marketing and sale prospects for the location.”

Commercial, industrial, and public sector investment have varying potential for investors depending on specific region, state, and market characteristics. In recent years, Western Australia, South Australia and regional areas have seen private land owners sell to capitalise on rising industrial land values. Warehouses are thriving, off the back of an e-commerce boom and disruption from the pandemic. For the first time ever, the value of industrial assets are in the same league as established city offices.

Leverage market trends

Recognising trends can help identify the best opportunities to act on, says Tim Brown, director, strategic consulting - NSW, JLL.

“Decide on a targeted return to ensure the acquisition cost is appropriate,” Brown says. “Having a complete picture of early viability can really help to secure a profitable purchase in a competitive market."

Making use of professional advice about market trends and the latest research can also be invaluable when preparing to invest.

“We’re seeing medium-to-high density developments which may have been unviable only a few years ago, showing signs of viability,” Brown says. “This demonstrates that investors and developers are thinking outside traditional site requirements, meaning competition and demand is strong.”

With proper economic analysis, the right site conditions, and good timing you can confidently purchase a parcel of land primed for future returns.