Subdividing my property – what are the pros and cons?

Subdividing is when you divide one piece of land into multiple sections. Each becomes its own address (title), so it is legally its own piece of land.

Property owners with large backyards often start to think about subdividing.

That’s why I often hear investors say: “We are currently looking at subdividing our property. What does that involve?”

In this article, you’ll learn what a subdivision is, the pros and cons, and whether it could be the right fit for you.

Remember, here at Opes Partners, we recommend New Build properties to investors. So, there is an incentive for me to say, “Don’t do a subdivision. But a New Build instead.” But I won’t do that. Subdivision can be a lucrative option for some people.

On top of that, you should know that subdivision isn’t my field of expertise. That’s why I talked to Reuben Frizzell from Survus Consultants to get the facts together.

What is subdividing?

Subdividing your property, or a piece of land, is a bit of a process.

It costs a lot of money, and you’ve got to get the piece of land in a “ready-to-build” state.

You’re essentially doing all the hard work:

• Installing the driveway
• Hook up all the services (e.g. internet and electricity)
• Installing the plumbing, etc.

Once all these things are done, the next person can come along and start building straight away.

There are many different types of subdivisions.

#1 – The most common type: Fee simple subdivision

Generally, this is a bare piece of land. There are no existing services (internet, electricity or plumbing) or infrastructure in place.

So you’ll be starting from scratch to get the land “house ready”.

But you’re buying land that was meant for building property, e.g. not a farm.

#2 – The cheapest option (generally): In-fill subdivision

This is when you chop up an existing property in a residential zone. For example, if you own a property in Auckland and you choose to subdivide.

Usually, this requires less intensive construction work. That's because there are existing services coming from your house. You just need to extend or add to them.

#3 – The most complicated: Greenfields subdivision

This is where you choose to subdivide a piece of land that has never been used for housing or any development.

So, think farmland in Canterbury.

If you do this, you’ll need planners, engineers, surveyors, and contaminate consultants. It’s a huge ordeal, which is why it’s the most expensive.

More from Opes:

• Subdivision secrets: How much can you make? (Podcast)
• Do properties with more land go up in value faster? (Article)
• New build vs existing - Which goes up in value faster? (Article)

What are the pros and cons of subdividing your property?

Here are the main pros and cons of subdividing your property –

Pro #1 – You can make a lot of money

When I was chatting with Reuben, he shared his own experience.

He bought a 1920s bungalow in his 20s. The land was 1600 sqm and cost $632k. He was able to borrow some money from his father, which helped him along.

Because the land was so big, he subdivided it. After all, that’s what his family’s business does. Subdivision is in his blood.

It cost about $130k to complete the subdivision, but he sold that piece of land for $275k.

So he spent $130k and got back that money, plus another $145k. Just bear in mind that since he gave up some land, the value of his home went down.

Con #1 – Subdivisions are more complex than many people think

The biggest misconception about subdivision is that people think it's easy.

There are lots of people who say: “I have this piece of land. Can I do anything with it?”

Other people say: “I’ll just carve off that piece of land.”

It is not that fast, and it’s not that easy either.

Subdivisions can take 6 to 12 months to complete.

This is why the most important thing is to get good advice before you start. This is across the board, from taxation to accounting.

You have to work with a lot of different people, including councils … and they don’t do things quickly.

It starts with feasibility reports. Then, you have to navigate the council’s consent process. Then, you have to manage a build (the services being put in).

This is all predicated on having a piece of land you can actually subdivide – not all land can.

The land has to be suitable to sustain a property. You also have to have the legal right to do so, and the zoning must permit a subdivision.

Without getting too technical, the Resource Management Act must allow the subdivision.

Reuben says the Survus team does about 120-150 feasibility studies a month.

Not all of them are a yes.

Con #2 – Subdivision can be expensive

The costs of a subdivision vary. It depends on the development and the size of the land.

For example, it could be a longer section and need a different type of driveway.

Or maybe the plumbing and wiring are more complex. This all adds to the price.

But generally, you’re looking at $60k - $100k+ as a ballpark. But there’s more to it than this. (More on costs below)

What are the steps?

Here are the main steps you’ll need to go through if you want to do a subdivision –

Step #1 – Get a professional to see if the land can be subdivided

The first thing you must do is get a land surveyor.

Reuben says getting good advice is the most important aspect of the entire process. Some of these companies, like Survus, do an initial look (called a feasibility study) for free.

They’ll then give you a detailed proposal that outlines all costs related to the subdivision. This paints a clear picture of what’s involved.

There are lots of technical details involved. But all you need to know is they check to see if the land can be subdivided.

If all the boxes are ticked, they will apply to the council.

Step #2 – Apply to the council

The council will then assess your proposal against the district plan. If they give it the OK, you will get subdivision consent.

Step #3 – Subdivide

Once you have the council's consent, the process is split into two parts.

• Issuing a new title plan.
• The physical works of plumbing, wiring, and installing the driveway.

Step #4 – Build a house (optional)

Remember, subdividing a property is separate from building a house. If you successfully subdivide your property, you can sell it … or then choose to build a property.

Most investors will choose to build a property. But that is another step in addition to the subdivision.

How much does a subdivision cost?

To chop up a lot of land and make it “house ready”, you can expect anything from $60k to $100k+. This is a ballpark only.

A full subdivision is where you create the section and build the base of the house and the driveway. This includes the plumbing pipes and wires required to run the house.

Remember, this $60-$100k+ is just for the base.

If you want to build a house on the foundations you’ve made … you still have to pay for that house to be built.

Most property investors are looking to build a house on top. This is because that’s how they can tenant the property and start making a return.

On top of that, you also have survey, legal and council fees.

Reuben says he largely deals with subdivisions in Christchurch. His clients can spend $8-12k just on the paperwork for creating a new house.

Do you go to your mortgage advisor first?

Unless you’ve got the money in the bank, you’ll need to approach a bank for the money to complete a subdivision.

But there is more of a risk with subdivision than there is in lending for a New Build or an existing property. 

Peter from Opes Mortgages says lending for a subdivision is possible. But you may need to provide more proof to get your lending over the line.

It also depends on what you are trying to subdivide. There's more to do if you're subdividing a 10-hectare section vs your backyard.

The bank will still need a valuation to show what your property will be worth after the process is complete.

That’s why, in this situation, it’s best to get good advice first about what’s possible before heading to the bank

How does this compare to buying a New Build?

Ultimately, subdividing your property will be a more lengthy and complicated process. If you are lucky enough to have a piece of land that is suitable,

Compare that to buying a New Build off-the-plans. Buying a New Build is a lot simpler.

That said, subdivisions can be lucrative.

Subdividing a piece of land you own and building an investment property can earn you a lot of money.

Make sure you engage the expertise of a professional before you start making any plans.