An inside scoop for new Sydney investors interested in property development
Are you interested in stepping into the property development game? Property development has lucrative financial opportunities and possibilities, but also a few risks. Engaging in thorough research and seeking expert guidance is essential before entering into the development market.
What exactly is property development?
Property development is, in simple terms, re-structuring the surrounding environment to meet society’s needs. It includes the construction of residential, commercial, hospitality and/mixed-use locations from single dwelling homes and apartments to office buildings and retail complexes. New developments in Sydney are imperative to our community due to our constant population growth, evolving consumer needs and technological advancements.
Becoming a property developer requires a realisation that along with the potential profits, it is, quite literally, risky business. Many investors start within the industry without knowing much and soon enough catch themselves in a precarious situation. For this reason, research is key.
Factors to consider when becoming a property developer in Sydney
- Savings: As a property developer, instead of purchasing a development in Sydney at retail price, you will be able to obtain investments at approximately 15-20% below their market cost. This deduction is because you will not have to pay the developers’ margin, agent’s commission, GST and some costs, such as marketing.
- Profits: buying new developments in Sydney and selling these projects at the right time of the property cycle will, in turn, lead to massive profits. Most developers sell their projects, however, some also refinance them against their new higher value and take out their extra equity. This equity is then used as capital for their next project.
- Trouble-free finance: obtaining finance for new developments in Sydney can be challenging at first. However, once you have completed your project, approaching lenders to refinance becomes much easier and they will usually lend you 80% more of their retail value.
- Leverage: once you have completed your new development project in Sydney, you will get large leverage as you control a substantial property with most of it as equity.
- Security: if you undertake the property development process correctly and buy your new development site in Sydney informatively, your investment will always be worthwhile and a secure way of guaranteeing capital.
Risks of a property developer: buying new developments in Sydney in the wrong areas
- Purchasing the wrong property: many developments are classified as a ‘bad’ or ‘wrong’ choice. This could be for reasons such as future council or planning issues. Not every property has the potential for development which is why it is essential to conduct substantial research and work alongside an experienced team.
- Purchasing for the wrong price: buying a property at the wrong price and paying too much will mean that you will have to cut costs in other aspects, making the process more difficult.
- Purchasing at the wrong time: you must analyse the market and develop sites that will still be a substantial investment upon completion. Buying at the wrong time of the property development cycle can cause issues and potential risks.
- Not conducting research: as a new property developer, it is essential to understand the exact costs that may not be upfront or noticed from the start. Administering a feasibility study and ensuring enough research is conducted is crucial!
- Rising interest rates: throughout the development process, interest rates could change, therefore lowering profits. This external factor can be volatile, so the important factor to consider is the rate at which the transaction is taking place at.
- Increase in construction costs: throughout the process of your new development in Sydney, there can be many unforeseen costs that are brought to light only while the construction is taking place. It is essential that all costs and communication is transparent.
New property developments in Sydney: areas for development, hints, tips and tricks
Below is a brief outline of tips and tricks to help build confidence in your decision:
- Understand the rules of property development before stepping into the game
- Property development is a fantastic way to develop a stable cash flow through accumulating assets in your property portfolio. However, realistic expectations are a must
- Obtaining the right finance is crucial
- A great place to start is by getting involved in property renovations; this will help learn skills and become experienced within the field
- Start small and don’t overcommit financially on the first few projects you undertake
Before getting involved in property development, you must ask yourself some questions ensuring you are ready:
- Do I have sufficient general property investment and market experience?
- Do I have the knowledge required to undertake a development?
- Do I have a professional team or expert guidance that can assist me?
- Do I have the required time to manage the project?
At Cite Group, we are a dynamic Sydney based property development company focusing on residential developments. We understand property development and recognise ways to capitalise on the potential, maximising investment for our investors.
Keep up to date with us here.