29 May 2007

Investing and Property Development

When trees really do spoil the ‘view’

When Luke Sheales decided to demolish a run-down house in Bentley and replace it with two luxury units, he never thought a couple of trees on a neighbouring property would cause so much trouble

Luke Sheales has been investing in property for several years; however, his journey along the path to property development began only five years ago.

As the national sales manager for Mortgage House, Sheales certainly knows a bit about property – so once he decided to try his hand at developing, it didn’t take him long to lock down a high-growth area with suitably large blocks of land.

“We came across an old Californian bungalow in Bentley, and bought it, with a plan to develop it into two units,” Sheales explains.

Bentley is a suburb of Melbourne, located 10 minutes drive from the beach, 10 minutes from a large shopping area, and 20 minutes from the city. Sheales secured the property for $451,500 in September 2002.

“We basically bought it for the land, which had an old building on it, and we’ve been renting it out for $250 per week – but [the property] is in very poor condition. We really paid land value for it.”

Sheales, who divides his time between Sydney and Melbourne, says the plan was to swiftly buy, detonate and rebuild.

“We had the survey done and lodged plans with council, and they didn’t have any issues. At that stage everything looked good,” Sheales explains.

“Then, we had to advertise – and it was only then that we found we had issues with the neighbours.”

Nightmares on Bentley Street

As part of the project, Sheales planned to include underground parking beneath the apartments.

Unbeknownst to Sheales, developing this underground level would adversely affect the root system of three of the neighbour’s trees, which he only discovered when the neighbours lodged a complaint with council.

As a result of the complaint, Sheales was required to engage the services of an arborist – at a cost of $3,500 – to fully survey the area. The council was also required to engage a second arborist to inspect the area.

Arborists are trained on proper tree care and are knowledgeable about the needs of trees. They also frequently focus on the health and safety of individual trees, or wooded landscapes.

“In the end, our arborist came back and reported that only minor changes were required to develop the new properties in a manner that wouldn’t affect the neighbour’s tree root system,” Sheales explains.

“But the council’s arborist had a different finding – they basically said that a number of major changes would be required for the project to proceed.”

By this stage, the neighbour’s objections had held up the project for several months, and Sheales was facing the possibility that his development may never move forward as originally planned.

“The trees on our actual property aren’t big and they’re not causing us any problems – but the trees on the whether, in light of the root x-ray and the amendments to the boundary, the development could proceed.

“We had met with the neighbours a number of weeks earlier and agreed to some of their concerns,” Sheales explains. “The meeting to determine the result went ahead on 7 September, and we were granted the permit.”

Sheales says he began the process of obtaining approval for the development around March 2006, and advertised the permit in January 2007, which is when the neighbours lodged a complaint.

He had anticipated that construction would be complete by now, but instead, the objections held up the process by about nine months. Despite having to cover the substantial holding costs for a much longer period than planned for, Sheales believes that the delays have actually been for the best.

“Property prices, particularly in Bentley, have gone through the roof – they’ve doubled in the last five years,” Sheales says. “So, maybe its Murphy’s Law, but it has actually ended up in my favour.”

And, despite the unexpected setbacks and stress, he still “absolutely” believes the property investment will be worth all of this hassle in the end. Once complete, Sheales says that the two units will sell for between $800,000 and $900,000 a piece.

Future plans

Sheales says that the hiccups involved in his first development won’t deter him from doing it again.

“One development a year is a good way to go, I think,” he says.

“Historically, property has got the greatest growth. If you buy a property today and it goes down in value tomorrow, you’ve still got the property at the end of the day – and as long as you can afford the repayments, you can hold onto it until it moves up in value, as it will go up eventually.”

Sheales believes suburbs anywhere within 15km of the city will be the best performers.

“I’ve been looking at Sydney and I think there are still some good areas there. Older style apartments throughout McMahon’s Point represent really good value,” he says.

“But I tend to like something that I can drive past as an investor. I like to be able to see it and monitor it.”

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