Developer Risks & Rewards
If you’ve been flush with excitement about knocking down mum’s old place and building three 3-storeys in response to the Medium Density Residential Standards, hold back your wrecking ball for a moment and consider whether you’ve got the appetite for the risks of a mid-sized development.
Housing prices continue to fluctuate with economists predicting the trough to come in the first quarter of 2023. Inflation and mortgage rates are still nudging upwards around 7.2% and many Kiwis are struggling with negative equity from homes purchased at the peak. Construction prices continue to rise with a perfect storm of tradie shortage and supply chain disruptions (many of which have straightened out). If you are a developer, you will be used to the roulette that can be housing developments. You’ll understand the best approach for you is to plan long term, and be prepared to take your time to get your properties ready for the market when, (and if) it heats back up. But what if you aren’t in development as a full time gig? What if you just want to capitalise on your section, and build out your nest-egg?
Develop the land you’ve got
There’s still room in the market for in-fill developments. If you are sitting on a property in a high-demand area with a sizable back yard, a simple one-unit development will be easy to manage, and may even be in higher demand by the time you complete. Consider your future buying audience – young families need a bit of space for that trampoline and to grow some veges with the kids. Where’s the space for the vehicle? Boomers are not quite ready yet for autonomous vehicles and Uber-only. Whilst new planning standards may not require off-street parking, your potential buyers might.
Now or never?
The best time to build is always when you can afford to. Developing your land from woe to go will require all your spare time & energy for around 18-24 months, if you get a good run. In the long term, housing demand will continue to increase, so consider when you’d like to be reaping the benefits of your investment. If you want a faster development and a speedy sale, shifting houses to install a block of apartments may not be right for you. Instead, choose a plan that works well with your section and any existing properties, and look to maximise ROI through higher price due to increased potential demand. Promote some features that other MDRS developers might have to sacrifice – like back yard space. But ultimately remember one size doesn’t fit all. Consider all your options and decide the best development path for your needs now, and how much risk you are willing to take on as the project progresses.
As always I’d recommend finding a good surveyor who understands your short and long term needs and can help you to identify all your options.