How to Assess a Development Site in Australia — A Complete Investor Guide
Development sites are the highest-upside and highest-risk asset class in Australian property. The difference between a profitable development and a loss-making one often comes down to a handful of decisions made during the assessment phase — before any money changes hands. This guide covers every factor you need to assess before making an offer on a development site.
Step 1: Check the Zoning
Zoning determines what you can legally build on a site. In Victoria, the most relevant residential zones for development are:
- General Residential Zone (GRZ) — typically allows townhouses and small apartment buildings, subject to neighbourhood character overlays
- Neighbourhood Residential Zone (NRZ) — more restrictive, often limits development to two dwellings per lot
- Residential Growth Zone (RGZ) — encourages medium-density development, typically allows 3 to 5 storey apartments
- Mixed Use Zone (MUZ) — allows both residential and commercial development, often the most flexible zone for inner-suburban sites
Check the zone via the relevant state planning portal (DELWP in Victoria, ePlanning in NSW) before any other assessment.
Step 2: Review Council Overlays
Overlays apply restrictions over and above the zoning and can significantly affect what is achievable on a site. Common overlays to check include:
- Heritage Overlay (HO) — may restrict demolition or require heritage-compliant design
- Design and Development Overlay (DDO) — may specify height limits, setbacks or design requirements
- Vegetation Protection Overlay (VPO) — restricts removal of significant trees
- Flood Overlay (LSIO or FO) — may require flood-resistant construction or restrict basement development
- Neighbourhood Character Overlay (NCO) — requires development to respond to existing neighbourhood character
Step 3: Run a Basic Feasibility
| Item | How to Calculate |
|---|---|
| Gross Realisation Value (GRV) | Number of units x estimated sale price per unit |
| Land cost | Purchase price + stamp duty + legals |
| Construction cost | GFA (sqm) x construction rate (typically $2,500 to $4,000/sqm for residential) |
| Holding costs | Interest + rates + insurance during construction (typically 18 to 36 months) |
| Professional fees | Architect, engineer, town planner, project manager (typically 8 to 12% of construction cost) |
| Statutory fees | Planning permit, building permit, infrastructure contributions (VIC: approx $14,000 per dwelling) |
| Sales and marketing | Agent commission + marketing (typically 2 to 3% of GRV) |
| Developer profit | Minimum 15 to 20% of GRV for the project to be viable |
If the land cost plus all development costs plus required profit exceeds the GRV, the site does not work at the asking price.
Step 4: Assess Planning Risk
Planning risk is the most underestimated factor in development feasibility. Key questions to assess planning risk include:
- Has the council approved similar developments nearby? (Check the council’s online permit register)
- Are there objectors likely? (Corner blocks, sites adjoining heritage properties or established trees attract more objections)
- What is the council’s current attitude to development applications? Some councils are pro-development; others are highly restrictive
- Is there a Neighbourhood Character Policy or local housing policy that could restrict the number of dwellings?
Frequently Asked Questions
What is the minimum lot size for a development in Melbourne?
There is no single minimum lot size — it depends on zone and overlay. In a General Residential Zone, councils typically expect a minimum of 300 to 400 sqm per dwelling after subdivision. A 600 sqm lot in GRZ may support 2 dwellings; a 1,000 sqm lot may support 3 to 4 dwellings subject to design requirements.
How long does a planning permit take in Victoria?
Statutory timeframes require councils to decide within 60 days for applications that don’t require notice, and within 60 to 120 days for applications requiring public notice. In practice, complex or contentious applications in inner Melbourne often take 12 to 18 months, with appeals to VCAT adding further time.
What is an infrastructure contributions plan?
An infrastructure contributions plan (ICP) is a levy charged by the state government or council for new development to contribute to the cost of roads, open space, drainage and community facilities. In Victoria, the levy is typically $14,000 to $16,000 per new dwelling for growth area sites, with varying rates in established suburbs.
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