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Room for more? Your backyard might be a valuable asset

Having a big backyard can be a ticket to more financial freedom, but there’s a lot to consider first.

It seemed like a lucrative and manageable task for the Foultier family in Hobart. Subdivide the large block on which the old family home stood; build two units on the new block and use the proceeds to fund an overseas trip and retirement.

And was it?

“Well we managed it… in the end,” laughs Peter Foultier*.

Foultier, a recently retired public servant, counts himself as an experienced project manager (although not in building or planning) and savvy when it comes to negotiating bureaucratic processes. But he wasn’t prepared for what was to come.

“Some of the rules and regulations are utterly baffling,” he says, and dealing with the local council was frustrating, slow and “often bizarre, like something out of that TV show, Utopia”.

The planning approval process was “punishing”, he says, after neighbours complained the subdivision would affect the amenity of the area, that their backyards would be overlooked by the new units, that increased traffic would be noisy and dangerous, “and the list went on”.

“These were people we’d known for years, our kids had grown up together.”

Eventually the objections were overruled and the council issued the necessary permits.

With the paperwork behind them, the Foultiers launched into the building process, facing some of the usual hurdles. The quotes were more expensive than they’d been banking on, their contingency fund should have been larger, and some of the subcontractors were not doing their best work.

Meanwhile, they hadn’t counted on the sadness they felt at the loss of their big back yard. “When the dividing fence went up it felt a bit like a Berlin wall,” says Foultier. “But we kept reminding ourselves why we were doing it and the advantages. We completely landscaped our new smaller space with new plants and terraces so that it was new.”

So, was the project ultimately rewarding? “It was absolutely worth it in the end,” says Foultier. “I’m not sure we would have taken it on if we’d known about all the hassles but we have benefitted from it and will continue to thanks to the rental income from the units.”

Is your land suitable?


Subdividing the family house block isn’t an option for everyone, of course. Council regulations or the size of your block may be against it. There are also the neighbours’ rights to consider – they may win an appeal against your planning permit – or the land itself may not be suitable.

For example, says Aaron Sweet, a Brisbane town planner and consultant, a block that falls away from the street may not be practical for building. In that case, the sewer main servicing the existing house may not be deep enough for the rear lot to drain into it.

“So then you need to find the next closest sewer, which quite often will be in a road behind the property,” says Sweet. Or the sewer could be in your neighbour’s property, which can create an additional issue.

“Quite often you’ll need to negotiate with the adjoining owner and have them consent to you doing the required infrastructure work. Some will flatly refuse. Others will go on a first-class trip to Europe at your expense.”

To ensure a subdivision runs smoothly, professional advice is essential.

Compliance checks

To ensure a subdivision runs smoothly, professional advice on zoning, surveying, town planning and development applications is essential.

Initial desktop checks of the zoning, minimum lot sizes and access can reveal whether the fundamentals are there for a successful subdivision, says Sweet.

“They will look at whether you can achieve the minimum lot size and keep the existing dwelling, and comply with setbacks and other code requirements. Then ultimately it comes down to whether the services are available or not.”

Council also considers whether building setbacks from the existing dwelling comply. If not, is there a good argument for why not?

Then you’ll need to consider the expense of building a driveway for the newly subdivided lot. “If you’re building a driveway 2.5 to 3 metres wide that could be, in some instances, 30 to 40 metres long, that’s not cheap to construct,” says Sweet.

Other costs include infrastructure charges, developer contributions and land tax, which can be up to half the total subdivision cost.

Find the experts

To get a clear picture of whether a subdivision is feasible and its cost, Sweet recommends engaging a town planner and a civil engineer early in the process.

A civil engineer will review all the services and advise on what’s required. “They can also come up with some budgets on the cost of those civil works and connections.”

A registered surveyor surveys the site and prepares a plan and will see it through to the end of the process.

It’s also important to discuss a subdivision with your financial adviser.

Justin Chandler, principal and senior financial adviser, Chandler Private Wealth, also recommends tax advice, if you intend to sell the newly created parcel of land.

While your principal residence is exempt from capital gains tax (CGT), the exemption applies only to the block of land with the dwelling on it.

“In terms of capital gains tax, when the land is subdivided, that’s not actually a CGT event. It becomes one when the parcel is sold,” says Chandler.

If the sale generates a CGT liability, those approaching retirement could put some of the proceeds into super, assuming they’re eligible to contribute and the amount is within the allowed caps.

“That could negate some of the capital gain, and then they have a greater amount in superannuation,” he says.

Retaining ownership of a subdivided block and putting a dwelling on it for elderly parents or adult children isn’t subject to a CGT liability until the block is sold.

An alternative to subdividing could be to put a granny flat in the backyard, says Chandler.

And for the Foultiers, who completed their subdivision despite some hurdles and profited from it, relations with the neighbours have improved.

“One family moved away anyway but with the others, we just worked really hard to cover their concerns by planting good screening and making sure the windows in the units weren’t directly overlooking them. So, they’re a bit happier about it now.”

*Real names not used
 

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Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.