Perth property managers and real estate agents are fielding a lot of questions lately, about the new R-Code changes that went into effect on 2 August. While it may take as long as a year for the full implications of the changes to appear, we think–at least for now–that they represent an excellent opportunity for property owners to profit.
In particular, owners of investment properties in Perth should pay close attention to the R-20 zoning change. R-Codes are designed to control population density by limiting the amount of dwellings that can be erected in a residential area. The statement released with the amendment said that it is designed to produce “better residential design outcomes.”
The WA R-Codes are somewhat unique and represent members of industry, the local government and local communities coming to an agreement on what best serves the people of WA. The model is well-respected outside of WA.
What is the most Important Change in the R-Codes?
To us, the most important change and the one that offers the most opportunity for savvy investors to make money is change in the R-20 code. From 2002 until the recent change on 2 August, 2013, the R-20 code mandated that any lot in an R-20 area had to be at least 440 sqm in size, with an average of 500 sqm for any subdivided area.
This required that a two-lot strata subdivision be at least 1,000 sqm in area, which is the average of 500 sqm multiplied by the number of lots, two. Then as now, with the current numbers, landowners can apply for a 5% variation which would bring it down to 950 sqm under the old law–but they aren’t always approved.
As of 2 August, the minimum lot size is only 350 sqm, and the average lot area is 450 sqm. This reduces the minimum area for a two-lot strata subdivision to 900 sqm, which is 450 x 2. With a variation, the number could go as low as 855 sqm.
How You can Profit
While we think it could be as long as a year for the changes to fully imprint themselves on the market, we have identified some ways to profit from these changes. The most important thing to know is (a) whether you own any properties that have just changed from ineligible for subdivision to eligible for subdivision; (b) to identify underpriced properties that may be on the market due to the changes.
Investors can typically pay as much as $100,000 more for a lot eligible to subdivide than one they can’t subdivide.
This creates one obvious opportunity: Buying a property that is on the market as ineligible for subdivision, when it is actually eligible. This can create up to $100,000 in profit by merely “flipping” the property.
What we consider a better strategy is to subdivide the property yourself and build a second house. Then you could either sell it and make a good profit or keep the property as a long-term investment. We usually recommend the more conservative strategy but you can’t really lose either way.
It pays to know your zoning codes.
Jarrad Mahon is the Director of Investors Edge Real Estate. The real estate agents and property managers in their Perth office specialise in buying, selling, and managing properties for investors. Call 1300 472 427 and know whether or not your property is affected by the R-20 zoning change.