Sydney’s “megalot” trend – which sees neighbours band together to sell their properties to developers for a premium price – has migrated south.
Andrew Leoncelli, managing director of residential projects for CBRE in Victoria, says Melbourne’s homeowners, developers and agents have embraced the idea of “residential property consolidation” although to date, deals in Melbourne have been on a smaller scale than those in Sydney.
It’s all about making decision by committee, which can be tricky, but you just need to be clear about your aims and ambition.
“It’s absolutely happening. I’ve been involved in four deals in recent years and have another one at the moment,” Leoncelli says.
“It’s being driven by significant international developer activity in Melbourne, which is making it very difficult for local developers to find reasonably-priced sites which still give them the ability to make a profit,” he says.
Melbourne vendors have achieved 30% above market value for their properties simply by working with those next door, he says.
Group selling can result in a higher sale price
Megalot deals have been on the rise in some parts of Victoria and New South Wales since 2014, when changes to planning law made higher density development possible in previously “undevelopable” areas.
In Castle Hill, in Sydney’s north-west, 25 neighbours near a new rail link are hoping for more than $100 million for their houses – which translates to about $4 million each, in an area with a median house price of $1.35 million.
In 2014, in Epping, also in Sydney’s north-west, eight neighbours sold their homes, worth about $1.2 million each, to a developer for about $30 million, netting $3.7 million each.
While Melbourne deals typically involve fewer homeowners, they’re no less lucrative, Leoncelli says.
“We recently sold three properties on Burke Rd, Camberwell together to a developer for $10 million, which comes in at about $3.3 million each. On the brightest, sunniest day, those homes would only have made $1.8 million to $2 million on their own, so the owners walked away with a 30% premium,” he says.
Last year, Colliers International sold two neighbouring properties in Glen Iris, in the city’s south-west, as an 830sqm residential development site to a local developer for $3.4 million – achieving a reported record for the area of $4,096 per sqm and a 30% premium on the individual value of the homes.
It’s not just homeowners cottoning onto the tactic, though. Developers are capitalising too.
Leoncelli says CBRE recently had a developer interested in two neighbouring properties on Toorak Rd, Camberwell – but they wanted more. “We doorknocked the neighbours and then we had a four-house option for the developer,” Leoncelli says. “It can definitely work both ways.”
It’s a win-win, Leoncelli says, because developers want secure, smaller projects in sought-after suburbs to put up apartments they can sell quickly and for a good price.
“We see these boutique projects – which usually have fewer apartments in total and a higher ratio of three-bedroom apartments, both which people want – sell well through display suites,” he says.
What group sellers need to know
For homeowners, selling en masse requires common sense and good communication, Leoncelli says.
“It’s all about making decision by committee, which can be tricky, but you just need to be clear about your aims and ambitions,” he says.
While each deal is different, one spokesperson usually negotiates with neighbours and then with potential buyers – and the funds are normally split up based on square meterage.
“It has to be well organised and well orchestrated. It’s an agreement under common law after all,” he says.
The only downside? “Settlement may be at least 12 months, rather the 30 to 90 days of a normal sale, but other than that, it’s all upside,” Leoncelli says.
Date: 25th August 2016
Author: Erin Delahunty