There are many different strategies available to build wealth through property. Developments, renovations, buy & hold, negative and positive cash flow properties, residential property investments, commercial property investments; the list goes on and on.
If you are looking to buy something with a view to holding the property for the medium to long term, one strategy that you can look at is capitalising on future rezoning in a particular council. As a Property Acquisition Specialist at Plan Assist, part of my role is researching council LEP (Local Environmental Plan) and DCP (Development Control Plan) changes that occur from rezoning of land in a particular council. This can be very beneficial for our clients who are looking at a longer term buy & hold strategy, particularly with purchases through their superannuation funds or who are purchasing in a cash flow positive position with a dual occupancy strategy. This allows our clients to hold their property at little or no cost, whilst holding the property for future growth and development potential based on proposed rezoning.
So why do councils change the zoning regulations?
There are a few reasons. A recent change that has occurred in most councils in New South Wales, was due to a request made by the State Government to align all of the zoning within the state into a comprehensive LEP. Prior to this, each council had different rulings and names for each of the zones within the council area. By having this aligned zoning, it makes it easier for government, their employees and property owners to understand the property zoning.
Sometimes re-zoning occurs to meet the demands of residents. For example, in Blacktown Council prior to the current Draft LEP, it was possible to build townhouses anywhere in the council, as long as the site was larger than 3000m2 and met the rules of the LEP & DCP. This has now changed so that townhouses can only be constructed in R3 (Medium Density) zones.
It has been of great focus in the media of late that the NSW Government is planning for infrastructure, to accommodate for population growth in relation to housing. Between now and 2031, Sydney’s population growth is estimated to be 1.3 million people over this period, which will demand for approximately 545,000 new homes and 625,000 more jobs.
Rather than the Government’s traditionally reactive way of meeting housing needs in NSW continuing, the NSW government has set out to manage this growth in a more strategic manner. Local councils have put together their own plan to meet the demand of population, housing, infrastructure & employment growth, which for some councils have set the outline for their future re-zoning needs. For example in the Hills Shire Council, a contribution of 36,000 dwellings is estimated to be needed by 2031. In their planning documents they have broken down the numbers to the North West Growth Centre and 21,500 to be provided within the existing urban areas and release areas.
This then starts the process of rezoning lower density areas to higher density, to meet these population & housing growth needs. Some council have provided their Strategic Plans, going into great detail and showing what areas and suburbs are set to be re-zoned to higher density. Some councils have gone as far as providing what streets will be re-zoned to R3 and R4, or radius’ around different stations to be re-zoned to higher density.
How can this benefit your Buy and Hold Strategy?
It is very important to remember that these re-zonings are not guaranteed. Recently in one council, the draft LEP was published showing a particular area to be rezoned from low density to medium density. The community provided feedback that this wasn’t suitable, and the council listened. For now this area is staying at a low density. Population change has been estimated, infrastructure projects have been planned, but these could change in the future. However if you are planning on purchasing a property with a buy & hold strategy, it makes sense to try to maximize on one of these future rezonings and purchase a property that has the potential to be in a higher density area in the future.
We are continually researching these upcoming rezoning changes that are occurring for our clients. We had a client purchase a property in Blacktown late 2012, where we constructed a granny flat on the property, and it is held in a positive cash flow position. Six weeks after settlement the property was issued with a draft rezoning from low density to R4 density which permits 7 storey high density unit buildings. This instantly added value to the property, as well as the growth that the property has experienced with the recent price growth in Blacktown. Twelve months later a property on the same street (but on the other side of the road so it wasn’t R4 zoned) sold for $110,000 more. This was a great result for our client.
Some of this information may sound confusing, which confirms why it is important to ensure that you stay on top of all information provided by state government & local councils. It is ever-changing. All of the information is publicly available, it’s just a matter of spending the time to find it. For the examples provided in this blog I have focused on the forecasted changes in NSW, which is still tipped to have growth up until 2016 in recent reports. However this information can be found for all states, on different State & Local council web-sites.