Rezoning has been a significant catalyst for capital growth in some Perth suburbs in recent years and is being undertaken by a number of councils within the metropolitan area.
Since the start of 2016, a handful of councils have either gazetted amendments (i.e. approved rezonings) to their planning schemes or have reached the final stages of making changes.
Some of these councils include:
- City of Canning
- City of Swan
- City of Melville
- City of Joondalup
One of the most long-awaited rezonings was in the City of Joondalup, which will have a widespread positive impact on the development potential, and subsequently land value, of many properties in this area.
The entire process has taken almost 7 years with the original document being released for public comment in March 2009 before the rezoning was eventually gazetted in February this year.
The changes involved the ‘up-coding’ of 10 identified housing areas, including suburbs such as Warwick, Duncraig, Padbury and Greenwood, among others.
The focus was to increase housing density near public transport and activity centres, as outlined in the State Government’s planning blueprints, Directions 2031 & Beyond and Perth and Peel @3.5 Million.
The rezoning of a property, specifically when the changes allow for higher-density housing to be built, is a significant driver of capital growth.
Given the long timeframes for rezonings to be gazetted (generally between 2 and 5 years), property prices in these areas can be positively re-rated several times as the process progresses.
What are the risks?
Like any investment, acquiring a property in a proposed rezoning area comes with risks.
By purchasing a property before the zoning is gazetted there is a chance that the zoning, or development criteria, may change, which can be detrimental to the development potential.
A common form of rezoning is to create split residential codes, such as R20/40.
These types of zoning are accompanied with development guidelines, which outline the criteria required to attain the higher of the density codes.
This criteria and the rezoning areas themselves can be altered until such time that changes are gazetted.
These changes could result in a lower development potential for an individual property or even make it impossible to develop without joining up with neighbouring owners.
Up-to-date information and thorough research are essential when evaluating this risk.
However, investors should remember that no property’s development potential can be accurately assessed until the rezoning is gazetted and all development policies are finalised.
Another potential risk is over-paying for a property once the zoning changes are close to completion.
As the rezoning becomes more tangible and sales activity peaks in an area, it can be easy to become caught in the hype and pay too much. In some instances, our research team has identified locations where land prices have been pushed past a profitable level during the latter stages of rezoning.
This can cause issues with equity growth for investors and prevent developers from capitalising on their properties in the short term.
Identifying rezoning areas and understanding the proposed development guidelines is a critical part of property research because it allows the investor the greatest opportunity to choose the property with the highest capital growth.
While buying a property that’s being rezoned can deliver great returns, it’s also important to couple such properties with other capital growth drivers, such as demographic changes, supply constraints and infrastructure upgrades, which will maximise the property’s performance.
If you have any questions regarding current or proposed rezoning of a property, be it your own or one you are considering buying, get in contact with the team at Naked Real Estate today to discuss your options or to ensure you don’t overpay!