The values of property rises and falls in the property cycle. If you have purchased a development site in a buoyant market or when the market is on the rise and not developed the site yet, you may be asking yourself when is the best time to commence the development project?
Some experts state we are at the bottom of the real estate cycle in Western Australia, which means your property is more likely to increase in value than to drop further in price. Here are some alternatives for you to consider when deciding on how to best proceed:
1. Hold onto your development site until market improves.
Waiting until there is evidence of increased values in the market is one strategy. Some points worth considering are:
- Holding the development site is an expensive exercise. Take into account interest, rates and opportunity costs when considering this option.
- The development approval process to obtain permits to construct can take quite a few months. You need to ensure the timing to obtain approvals, build, sell or rent are factored into the equation.
- The cost of construction is always cheaper when the buying cycle is at the bottom.
2. Sell the land now.
If the development site has reduced in value, you will need to be in a position to absorb the capital loss. You should also consider the follow expenses when liquidating the property:
- Selling agents costs
- Stamp duty on the next property
- Holding costs while you are selling the property
- Potentially any capital gains tax.
3. Move forward and build now.
Deciding to commence with he project has many potential benefits:
- The cost of construction is the lowest it has been in many years. When the market moves into an upward trend, the cost of construction will also increase making the project more expensive to build.
- You will be selling or renting the units or apartments in an environment where there is less competition.
- Work with a builder who specialises in developments, their expertise will assist you through the process.
- Anyone who has been involved in developing long enough has experienced trading when the market is at the bottom. Sometimes making a minimal profit or even a loss will free up your cash and borrowing capacity to commence on the next development.
Whatever you decide to do with your development site, weigh up all the options and decide what is best for you financially. Remember to partner with a builder that specialises in development construction.
Ventura iD and Multi Living Developments offer a free consultation service so you can see if developing is an option for you. Call (08) 9241 1600.