Property subdivisions are becoming increasingly popular across urban and suburban areas nationwide, namely because they allow property investors to turn a profit by building multiple titles on one block of land. But are subdivided properties still beneficial for homebuyers rather than just sellers?
Note: Whilst most articles on subdivision focus purely on the benefits they provide to investors, we’re here to outline how subdivisions can actually provide advantages to homeowners as well. On the flip side, however, property subdivisions can also come with their fair share of restrictions for strata title owners.
We’ll unpack all the relevant pros and cons of property subdivision for Aussie house hunters below.
What is a Property Subdivision?
At its simplest definition, property subdivision refers to splitting one plot of land into multiple lots or parcels. Property owners can apply for a plan of subdivision through their local council offices. This plan must outline the size, shape, and boundaries of the land plot, and the intended layout of the strata plan (i.e. the size, shape, and boundaries of each individual strata lot).
Subdivision isn’t as simple as drawing boundary lines, however. There are also civil works involved, including the installation of phone and NBN cables, electricity connections, gas mains, and water meters for all of the new properties on the subdivided lot. As these works can be costly, property developers must practice strong financial planning to ensure a property subdivision can provide a return on their investment in the original parcel of land.
Why do Developers Subdivide Properties?
Basically, developers subdivide properties because they allow them to build more equity. It’s a simple numbers game – the more properties in your portfolio, the more your overall equity can grow as the value of each property increases over time.
And if property developers want to rent their subdivided properties out before they sell, they can enjoy multiple streams of rental income by leasing out each of the properties on their lot.
Benefits of Property Subdivision for Homebuyers
So what are some of the benefits of property subdivision for homebuyers? For starters, owning a strata title can be more affordable and manageable than owning a standalone property. Not only are property prices lower for subdivided properties, but with strata titles, title owners only need to secure building insurance through their body corporation and contents insurance just for their property. By splitting their building or strata insurance costs with other strata title owners, homeowners who’ve invested in a subdivided property may be able to keep their home insurance costs lower when compared to standalone property owners.
Subdivided properties are also ideal for singles, couples, small families, and buyers who are looking to downsize, providing compact, affordable, and low-maintenance living options that don’t require extensive maintenance (i.e. mowing big lawns). If your body corporate also allocates funds for garden maintenance, you may not even need to invest in a lawn mower or whipper snipper for your garage!
So to recap, these are the primary benefits of property subdivision for homebuyers:
- More affordable over standalone properties for first time buyers
- Allows buyers to get their foot in the door of the property market
- Allows buyers greater access to properties in-demand regions
- Smaller land plots means reduced property and garden maintenance
- Comparatively lower insurance costs through contents and building/strata insurance
Disadvantages of Property Subdivision for Homebuyers
Although strata lots are typically managed by body corporates, there are actually some responsibilities for strata owners that you need to be aware of before you’re able to decide if a subdivided property is the best fit for your needs. For starters, there are body corporate fees you’ll need to pay annually or quarterly, and additional sinking fund or special purpose levies that may arise on an ad-hoc basis (i.e. in the event of unforeseen maintenance or repairs to your strata property).
Strata titles also aren’t for everybody, in that some homebuyers would prefer to pay extra for more space and privacy. Most units and townhouses in Australia share walls with at least 1-2 other strata lots. Your balconies may even be separated by just a partition. This means that any construction or maintenance works done at your neighbour’s house may disrupt the peace in your own home. And any wall-mounting must be conducted with consideration for neighbours on the other side.
Living in these closer quarters also means you may have conflicts with other strata title owners at times. Thankfully, body corporates account for conflicts by ensuring strata managers can communicate with title owners, and by establishing rules and regulations for strata properties that all title owners must adhere to.
A general standard rule for most strata title owners is that you’re authorised to only make independent changes to the interior of your property. This means that if you’re looking to renovate your subdivided property, you will need to first seek approval from your body corporate. If you don’t want to live by this or any of the other bylines you typically see in a strata contract, a strata title may not be the right property for you.
To recap, here are the main disadvantages of buying a subdivided property:
- Reduced autonomy to make changes/renovations as a homeowner
- Title owners must adhere to all strata rules and regulations
- Properties may share walls with neighbouring strata lots
- Unexpected strata fees may arise
Subdivision vs. Standalone Properties: What’s the Best Fit for You?
In all cases, a subdivided property could be an ideal fit for your lifestyle and budget as a homeowner. The affordability of strata titles allows first homebuyers to easily get their foot in the door and leave the rental market.
Note: The strategy is to invest in a subdivided property in a growth region – just to make sure you’re able to build equity more readily on your strata title and ensure you’re in a strong position to continue investing in property if you’re keen on building up your portfolio over time.
If you’re just looking for a small home to call your own, however, a strata title can provide all the indoor/outdoor space and lifestyle amenities you need, with lower monthly repayments and perhaps even reduced insurance and home maintenance costs. What’s not to love?
