In his column in Switzer, John McGrath discusses ‘megalot’ land deals – the latest trend in the property market.
Here’s what he had to say:
There’s an emerging trend in major cities like Sydney and Melbourne where neighbours are banding together to sell their in single ‘megalot’ land deals to developers.
This has been happening over the past few years in response to government infrastructure programs that include re-zoning land close to major new projects such as train stations and hospitals.
This re-zoning, which is allowing the construction of medium and high density apartment blocks on land previously restricted to single homes, is definitely the way of the future in major cities where population growth is high.
The great news is that separate to the actual need for more medium-to-high density living to simply fit everyone in; a lot of people actually want to live in apartments over houses these days anyway.
So it’s a great marriage between the practical needs of growing cities and the lifestyle preferences of their residents.
Castle Hill case study
The latest case study of this trend is 25 neighbours in Castle Hill in Sydney’s Hills District, who have listed their homes as a single 24,000 sqm lot worth around $100 million.
The site is located at 3-7 Ashford Avenue, 17-39 Middleton Avenue and 12-28 Partridge Avenue, Castle Hill.
The area is proposed to be re-zoned as part of the development of North West Rail Link, with the Showground Station being built nearby.
If the site sells for $100 million and the proceeds are split evenly, the vendors will pocket $4 million each, which is about three times the median house price in Castle Hill.
In the Northern Beaches suburb of Frenchs Forest, 62 home owners are offering their combined lots for about $200 million.
The block totals 4.3 hectares and is bordered by Epping Drive, Rabbett Street, Frenchs Forest Road West and Bluegum Crescent.
Their site is also close to new infrastructure – about 200 metres from the new Northern Beaches Hospital, which is under construction and expected to be completed in 2018.
The home owners are expecting more than $3 million per lot, which would be more than double the suburb’s current median house price of $1.4 million (CoreLogic).
This ‘mega lot’ trend is a fantastic example of people power and creatively leveraging market conditions (including re-zonings) to your benefit.
Some home owners are motivated by the financial windfall that comes with selling to a developer.
Others see it as making the best of a bad situation, feeling like they need to leave the suburb to avoid being surrounded by high-rise developments in the future.
Residents are either approaching each other to form syndicates on their own initiative following a re-zoning, or they are responding to letterbox flyers from developers either pre- or post re-zoning.
Some are approaching agents for an introduction to developers, while others are asking agents to approach their neighbours on their behalf.
Sydney ‘megalot’ sales
- In Epping, eight neighbours sold their homes to a developer for about $30 million, netting them $3.75 million each for properties that were individually worth about $1.2 million
- In St Leonards, nine home owners sold to a Hong Kong developer for about $66 million, netting an average of $7.3 million per vendor
- In Castle Hill, 15 home owners sold their combined 14,000 sqm lot for an undisclosed price
The ‘megalot’ trend is also happening in Melbourne.
- In Glen Waverley – two owners sold to a developer for $2.54 million. Individually, the homes would have sold for about $1 million. The two properties created a 1,470 sqm site that drew offers from five parties
- In Bentleigh – three vendors sold to a Chinese developer for $5.76 million. In separate sales, the owners could have achieved $1.3m-$1.5m, but banding together enabled them to pocket $1.92 million each – assuming an even split, for the combined 1,985 sqm lot
- In Glen Iris – two owners sold to a developer for $3.4 million, a reported record land rate for the area of $4,096 per sqm. The owners of the combined 83
0 sqm site achieved about a 30% premium on the individual value of their homes
If you’re interested in doing something like this with your own neighbours, certainly get excited but also I’d advise you to exercise caution.
You’ll need an iron-clad agreement with your fellow sellers stipulating the terms of the sale (especially settlement periods and whether the sale relies on official re-zoning before exchange), the division of sale proceeds and a commitment from everyone to proceed.
Get a lawyer involved to make sure everyone’s rights are protected.
Things can get messy when there are some lots larger than others, for example.
You need total agreement between yourselves before you can begin dealing with developers.
You’ll also need an agent experienced in major multi-million dollar transactions with developers to market the property and act as your advocate and spokesperson.