It is clear that there has been a significant shift of what local areas looked like twenty years ago in comparison to now. Sydney’s Greater Western region is set to undergo a major transformation over the next five years, reinforced by extraordinary levels of public and private investment, particularly in regards to property development. With this, comes the increasing demand for high-rise structures and as a result, group sales between neighbours are becoming more common.
A group sale is when neighbours join forces to collectively sell their property to the same developer. Commonly known as a “package deal”, owners are taking the initiative to offer their properties to prospective developers. This agreement is becoming a popular way in which property owners can maximise their sale price through becoming part of the development.
What is causing the demand for group sales?
Mass Urbanisation
With a growing population, comes economic growth. Mass urbanisation increases the occurrence of group sales as developers are likely to build infrastructures that meet the growing population. Due to this, development is usually accelerating at a faster pace than usual to meet the increasing demand.
Rezoned/Rezoning Areas
Zoning can be defined as the governmental classification and permitted uses of an area or piece of real estate. Re-zoning is a change in that classification. A developer usually takes into consideration an area that has been rezoned or is fit for rezoning for prospective growth. With this, new infrastructure will be advantageous particularly if it is surrounded by shops, transport and schools.
How do I know if my area is desirable?
Land Size
- Most importantly, you must know whether your land can be redeveloped or not, which is determined by zoning laws, which regulate what is prohibited or permitted on a block of land; and,
- Blocks over 700 square metres usually qualify for development.
Location
- Developers are attracted to properties that are in close proximity to public transport, local communities, shopping centres and schools, as well as those close to coastlines; and,
- Developers are also interested in areas where projects are already being established – showing that the area is under growth maximisation and is more favourable.
What are the benefits and limitations of group selling to developers?
Benefits
The benefits of being involved in a group sale include:
- We have seen in some cases by selling collectively, homeowners increase the sale of their homes by 20-30%, an example of this was where 25 neighbours in Castle Hill sold their land for three times the market value;
- Free from the risk of a failing sale due to no financial refusal, nor the pending of an existing sale; and,
- No efforts needed on advertising and marketing sale of home as usually, a developer will approach the community with their prospective ideas.
Limitations
The limitations of being involved in a group sale include:
- The size of your land is usually not taken into consideration, even if your land might be larger than your neighbours, the costs are usually evenly distributed;
- Settlement periods are much longer for example 62 neighbours in French’s Forest combined to sell 4.3Ha with talk of a $200 million settlement for homeowners – however, two years on the land still remains unsold.
- Some neighbours may have unrealistic expectations of the land – it is important that the price is feasible between the developer and the homeowner. Developers may be inflexible when negotiating terms of the transaction as councils often put restrictions on the size, number and style of properties that can be developed.
Where do I go from here? Do I need a Joint Venture Agreement?
A Joint Venture is an agreement between two or more entities to undertake a venture, commercial activity or business operation together. Whether the selling group is large or small – everyone needs to consider the legal consequences and structures in which they undertake during their developments. It is imperative that expert advice be obtained to ensure an understanding of the venture and what follows.
Are you stuck in this situation or considering a group sale to developers? It is important to consult with a lawyer who is highly experienced in this area and can advise you of your rights and obligations in a group sale. Please do not hesitate to get in touch with a lawyer in Coleman Greig’s Commercial Property team who would be more than happy to assist you.
