What does it take to subdivide land?

A subdivision is when a block of land is divided into two or more properties. As an investor, you could potentially generate profits by dividing land into smaller lots. If you own a large piece of land in a good location, you may consider creating smaller lots for sale. You might want to keep one lot for your own home and sell or rent out the others. 

Subdividing land in this way can help to grow your investment portfolio and potentially increase its value significantly without requiring significant changes. You can usually find buyers as smaller lots are more affordable and easier to maintain, but it’s extremely important for you to study the market demand and pricing before forging ahead. 

There are a variety of expenses associated with subdividing land. Are you considering buying land to subdivide, or working with a property you already own? Even if you have already acquired the land, you will probably require the services of a surveyor, and may need to demolish some existing structures on the property. You may require a town planner or architect to design the lots and obtain planning approvals, and you may need to pay specific fees and charges to local authorities. 

What are subdivision loans?

If you need finance to cover the costs of subdividing land, you can apply for a subdivision loan.  Land subdivision loans are usually offered for projects that involve the construction of up to three homes on the subdivided lot. Larger projects may need to be financed with a commercial loan. 

Many lenders charge the same interest rate for subdivision loans as for standard home loans. Usually, you can offer the land as security for the mortgage. While the loan to value ratio (LVR) for a subdivision loan depends on the project and your financial situation, many lenders accept up to 90 per cent LVR for such projects. Generally, your lender will require planning approvals to be in place before approving your subdivision loan application. 

As there are many ways to structure subdivision loans, you may want to seek expert advice from a mortgage broker to obtain financing that best suits your specific requirements. 

Can you subdivide land with a mortgage on it? 

If you’re still repaying the home loan on a property, you may need to ask your lender about subdividing land under mortgage. As the lender has a right to the title, they will need to sign off your subdivision plans before you can proceed. Lenders will want to confirm that you will be able to service the debt after altering the property. If your financial planning is sound and you’re enhancing the value of the property, you're more likely to be offered the lender’s approval. 

What is the process to subdivide land?

It's often best to start by checking your local council regulations when you want to subdivide your land. Most councils stipulate the minimum size of a subdivided plot. You will have to consider zoning rules and the height of construction allowed in your neighbourhood. You may need to provide driveway access to each lot and utilities such as sewers and drainage, and costs will depend on the location and physical features of the land. 

You will be required to submit a development application that the council will scrutinise. Bear in mind that you may have to develop the driveways and utilities before the subdivision can be completed. A surveyor will help you define the new boundaries. You will need to get titles for each lot and will require the services of a solicitor to help you with this.

Once you've done your groundwork, you will need to organise your project financing. After arranging for the funds and getting all the necessary approvals, you can proceed with the subdivision. Remember to get advice from experts and plan everything about your subdivision project in as much detail as possible. Unplanned expenses can derail your project and profits. 

After meeting all the associated expenses, is subdividing land profitable? Work out your financial projections carefully and consider all costs, including finance costs, to answer this question. Make sure the project is commercially viable and consider the effort you’ll need to put into it over some months before you decide to go ahead. 

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