Why development sites can make sound investments

CommercialWednesday 5 October 2016

Posted by Kieran Bourke, Burgess Rawson Sydney

Developers often put properties to market prior completion, whether it’s an off the plan apartment in a residential development or a commercial investment such as a service station or childcare centre.

Why do developers do this?

By selling a property before completion, developers can use the capital to move onto their next project. This is beneficial for commercial property investors because developers generally only sell the property after securing a quality tenant on a long-term lease.

Why invest in a property under development?

Brand new state-of-the-art building that usually comes with building and construction warranties

  • Generous tax depreciation benefits
  • Higher yields can be achieved. In general, yields are up to 0.5 – 1.5% higher than a complete and operational property under auction conditions.

  • What buyers should look for when purchasing an investment prior to completion?
  • Who is the tenant? Investors desire long leases to national or government tenants which provide a steady secure income. Like all commercial property investments, buyers need to ensure they are satisfied with the lease terms and that the property is financially viable and suitable for their needs.
  • Where is the site located? Location is a vital element for the success of any commercial property investment. Look for developments in a high growth areas where there is a demand for that specific property type.
  • What type of development is being constructed? Make sure that the type of property whether it be a service station or childcare development do your research to make sure that type of property is needed in the area as well as at that specific location. E.g. Service station developments should be on main roads which experience regular traffic.
  • Who is building the property? Buyers should ensure that there are sufficient warranties on the development to protect them from the cost of repairing any defects.
  • When will the property be complete? Buyers should make a note of the completion date when purchasing a property under development, as it may be some time between purchasing the property and receiving your first rental payment.

    For more information on investing in commercial property development sites as well as current listings feel free to contact us.