Enhance your land value with smart building decisions

While land value remains the most important contributing factor to property growth, the building decisions you make can significantly influence overall growth potential.

Highest and best use

In the property sector, the phrase ‘highest and best use’ refers to the most effective way to build on a block of land to incur the largest growth in capital value or the highest rental income.

The highest and best use test more commonly applies in the commercial property market, but it also has implications in the housing sector.

For example, the owner of an older-style home on a block that allows for a triplex development might be considering selling the property to either move, renovate or demolish and rebuild.

In this situation it’s likely the most profitable option would be to redevelop the property into a triplex or sell the property to a developer.

Renovate or rebuild?

Renovating or rebuilding the existing home might be a favourite or sentimental option, but it can also restrict the re-sale value of the property.

Buyers of these properties are likely to be developers, so renovating the property would be under-capitalising.

If you are wanting to remain in the same location and either renovate or rebuild, consider strategies that would keep the redevelopment potential of the land alive.

For example, if the land is zoned for strata development you could subdivide the block, build on one lot and sell the other or leave vacant. If you’re considering this option make sure you understand the tax implications of this strategy, in particular the likely capital gains and land taxes.

The safest strategy is to keep to a similar pattern of housing that already exists in your street or neighbourhood and concentrate on achieving the best quality construction for your budget.

SOURCE: www.reiwa.com.au