What You Need to Know About Mega Lots (And a Story About a Group That Made It Work)
What You Need to Know About Mega Lots (And a Story About a Group That Made It Work)
Many Australians are choosing not to sell their property individually. Instead, they are teaming up with neighbours to sell their properties as a single mega lot. This way of selling has many benefits for the owners as well as property developers.
In recent years, government rezoning plans have changed the face of major Australian cities. Under these new rules, developers can now build apartment buildings on land once restricted to single homes only. All this in an attempt to meet the needs of the growing population in cities like Sydney and Melbourne.
These rezoning efforts have prompted property owners in rezoned areas to come up with a new way to sell their homes to property developers. Rather than doing it individually, groups of neighbours are now teaming up to sell their adjoining properties in one fell swoop. Their properties form a large piece of developed land commonly referred to as a mega lot.
Selling and buying property as part of mega lots has a unique appeal for both developers and owners. For property developers, it is a convenient way to become owners of a large block of land at once. This gives them more opportunities to take advantage of the rezoning plans and develop new projects. For homeowners, it is a way to get the best possible sale price on their property.
Although still a fairly new concept, mega lot sales have become very popular in the last few years.
During that same period, successful mega lot sales have been a subject of many media reports. One such report motivated a group of neighbours from a suburb of Sydney to attempt a mega lot sale of their own.
The Case Study
Set to open in 2019, Sydney Metro Northwest is a rapid transit link that will connect the north-west suburbs of Sydney. One of those suburbs is Stanhope Gardens, which is the future home of the Kellyville train station.
Under the local zoning plans, property developers will be able to build 14-storey buildings in the area surrounding the station. The name of this area is Newbury Estate.
When its residents learned about these development plans, they decided to band together to sell their properties. One of the 34 residents who joined forces is John Blair, a financial consultant. According to him, it was the success of a similar group of neighbours that prompted them to take this step.
A few years ago, five homeowners in Castle Hill sold their properties to a developer as a single mega lot. Like Blair and his neighbours in Newbury Estate, all their properties were near a planned train station. In the end, each property averaged a sale price of about $4 million, three-and-a-half times their market value at the time.
Blair and his Newbury Estate neighbours got in touch with local property developers and pitched them their mega lot. The negotiations are still in progress, but the homeowners are very optimistic – and for a good reason.
Estimates say that the neighbourhood will welcome close to 15,000 new residents. With careful planning, developers could fit more than 2,000 units onto this mega lot. The units will thus be in high demand and no developer would willingly pass up an opportunity like that.
Why Might You Consider This?
Selling a mega lot might be better than selling an individual property for a variety of reasons. For one, it allows you to maximise the value of your property. That’s what the five residents of Castle Hill managed to do. That's also what the Newbury Estate homeowners are hoping to achieve with their mega lot sale.
But there are several other success stories that prove this is possible.
- Just two years ago, eight neighbours in Cheltenham combined their properties to create a 4,700 square metre mega lot. They sold the lot for $9 million, which is more than $1.1 million per property.
- Another group of eight neighbours in Epping sold their mega lot for $30 million or $3.75 million per property. That’s more than three times their market value of $1.2 million.
- A few years ago, two neighbours in Glen Iris sold their 830 square metre mega lot for $3.4 million. They netted a profit of almost 30%.
All these success stories point to another major benefit of taking part in a mega lot sale. Namely, you get to unlock the value of your land and not just the property that’s on it.
You see, when you’re selling an individual property, most buyers will only look at the value of the property itself. Even if you own a sizeable block of land, chances are it won’t make much of a difference. That’s because individual properties are subject to certain zoning restrictions. As such, they are of little use to property developers.
But when you’re selling as part of a group, the land you own becomes more important than your property. After all, developers aren’t interested in your house or your granny flat but the total size of the lot and the opportunities it presents. As a rule, the larger your mega lot, the bigger the development potential of the land.
Finally, you will have a lot more negotiation power as a member of a group than you would on your own. This is very important when dealing with property developers as it allows you to protect your interests in a more effective way.
Let’s say a developer likes the location of your property but doesn’t want to pay your asking price. Instead, they offer to pay considerably less. If you decide to reject their offer, chances are you’ll lose the sale. It won’t be that big a deal for them, as they can easily approach one of your neighbours and cut a deal with them.
This is highly unlikely to happen if you opt to sell your property as part of a mega lot. In many cases, those mega lot deals are the only way for a developer to gain access to a prime location in the city. And since your neighbours are all in on the deal, there’s no backup plan in case the negotiations fall through. As such, most developers will do all they can to meet your demands and close the sale of your mega lot.
The Potential Pitfalls
With so many major benefits, selling as part of a mega lot might look like an offer you can’t refuse. But before you go this route, it is important to consider a few things that could affect the end result of the sale.
First of all, there’s the size of your mega lot. While larger lots have a better chance at attracting developers, there is such a thing as too large.
Stuart Cox, sales director at Savills Sydney, cites a recent Castle Hill mega lot as an example. Almost 90 homeowners have banded together in this affluent Sydney suburb to sell a 9 hectare (90,000 square metres) mega lot for about $350 million.
According to Cox, this is far too large and “would be better off in smaller chunks”. He points out that very few investors can afford to buy the lot at that price. And even if they could buy it, the units that make up the lot are not fully continuous and some neighbours are refusing to sell, which makes the whole deal “a logistic nightmare”.
Frank Oliveri of CBRE Western agrees with Cox. He believes that the participants in the Castle Hill mega lot are needlessly limiting their developer pool. Unless the owners manage to make a deal with the few developers that can afford it, their mega lot could remain on the market for a long period of time. Also, if smaller blocks in the neighbourhood manage to attract developers, the value of the lot could drop dramatically.
Not all potential downsides have to do with the size of the lot. Some also have to do with the size of the group that owns the lot. The relationships between the members of the group can also affect the success of this endeavour.
As you surely know, managing a large group of people is no easy task. Of course, you can all pick a leader to represent your best interest with the developers. But that won’t matter much if the members of your group are prone to conflicts and disagreements.
If those conflicts persist, they could come between you and affect your or your partners’ decision-making. Some of them may thus choose to leave the group well into the process. That could hamper your goals and cause the developer to lose interest in your mega lot.
Tips on Getting Started
As you can see, there are several major benefits to selling your property as part of a mega lot. At the same time, there are some potential risks that you must avoid.
If you’re looking to get started in mega lot sales, these four expert tips should help you.
Tip #1 – Raise the Value of Your Land
One of the main benefits of mega lot sales is that they can unlock the actual value of your land. There are also some things you can do to further raise the value of your land, if only by a few dollars.
For one, you must make sure that the land is suitable for all utilities. These include electricity, water, and sewage among others.
It is also important to ensure you have full ownership of the land before you agree to sell it. Most homeowners already have full rights to their land, but it doesn’t hurt to double-check.
Tip #2 – Don’t Give Up Control of Your Land
When you’re part of a group, you must be ready to make certain compromises. But many mega lot group members make the mistake of giving up control of a portion of their land.
Let’s say you have a dispute with your neighbour over a small piece of land between your two properties. To get them to join your mega lot deal, you might think about giving up your rights to said piece of land.
You shouldn’t do this, though, as it will have a negative impact on your profit from the sale. If you really have to make a compromise regarding that piece of land, agree with your neighbour to split the proceeds evenly.
Tip #3 – Don’t Oversize Your Lot
Because of their size, mega lots are ideal for lucrative development projects. But you have to make sure not to oversize your mega lot. Otherwise, you’ll risk alienating smaller developers who don’t have the capacity to handle large and/or expensive mega lots.
As you’ve seen in the examples above, even a two-property mega lot can bring a sizeable profit. Although there are no specific rules, your mega lot should consist of no more than a dozen properties.
If you want to list a considerably larger mega lot, do it only if you’re sure there’s enough interest among local developers. If you fail to do this, your lot could stay on the market for months or years and lose its value over time.
Tip #4 – Appoint a Spokesman
To sell your property as part of a mega lot, you’ll need to talk to your neighbours and get them on board. But even if there are large sums of money involved, negotiating a deal can sometimes be difficult. The property might have some emotional value to your neighbour or they simply might not want to move.
To improve your chances, you should consider appointing a spokesman that will talk to your neighbours on behalf of your mega lot group. That is certainly better than having every member of the group try to persuade them individually.
In case you’ve hired an agent to market your lot, let them talk to your neighbours. With their vast experience and negotiation skills, one chat might be enough to get your neighbours on board.
The Final Word
If you want to sell your property in a rezoned area of a major city, teaming up with your neighbours into a mega lot might be the way to go. With mega lot sales, you can sell your property for three or more times its current market value.
Many Australians have already reaped the benefits of mega lot sales. If you’re still having second thoughts, their success stories will surely give you the motivation you need. Archistar can also help.
Our platform can help you to determine the development potential of your land. You can also get a free report showing what is permitted to build on your block of land.
Contact an Archistar Property consultant and get started now!
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Posted on 10 Dec 2018