What’s the Cost per Lot Across the Melbourne Growth Corridors?

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31 August 2021 -Where to buy, what to buy and how much do you pay.

Introduction & Background

By Chris Gallaugher, Senior Project Engineer, PEAKURBAN

Where to buy, what to buy and how much do you pay are all questions our clients are asking in what’s arguably the ‘hottest’ englobo land market ever. Demand driven by Government stimulus and a low interest rate environment have many developers looking to top-up their pipelines and land bank for the future.

PEAKURBAN provides stormwater and civil engineering services to many developers across all of Melbourne’s growth fronts (shown spatially below in Figure 1).

It occurred to us that we have access to a lot of information relating to development costs that would be beneficial to share with the broader development industry, particularly from the perspective of initial assessments for site feasibility and benchmarking costs against existing projects The cost data contained in this article is based on the past 20 months and incorporates costs from multiple sources including due diligence projects as well as active and recently completed greenfield development projects.

We acknowledge that deriving an average cost per lot will have some variability based on specific site constraints and unique circumstances. This work is by no means intended to replace a proper and thorough due diligence but to be used as a quick reference to understand likely costs and undertake quick site assessments.

Figure 1 – The PEAKURBAN GIS system showing all our completed, ongoing, and confirmed projects within the Urban Growth Corridors. Regional projects i.e Echuca, Drouin, and San Remo etc. not shown.

The Data Sample Set

In Victoria, PEAKURBAN completes around 250 opinions of cost each and every year.

Value creation can occur at any stage of a project, but if our clients do not receive timely, accurate and high-quality advice at the due diligence stage then there will never be any project to generate further value.

The data set used in this report comprises the following:

  • 97 Projects
  • Approximately 15,117 lots: – 3080 lots of tendered/contracted and confirmed values over 20 months & 12,037 lots of due diligence feasibilities.
  • Only successful or currently open due diligence reports considered to not skew data if sites were not feasible for development.
  • All data is from 2020 onwards to remain current with overall fees and construction pricing.
  • Developments less than 20 lots or outside of the growth municipalities were not considered though there is substantially more data for those areas.

As stated previously, projects and sites are highly variable and need to be assessed on their own merits due their own cost factors; soil conditions, topography, value of reimbursable works, and ability to amortize costs of external infrastructure over the size and scale of the project.

Cost per Lot Results

Table 1 – Average Internal, External, and Total Development Costs per Lot.

Notes:
1. Civil costs to service allotments.
2. Civil costs not directly associated with servicing allotments – estate major works. Note – does not include offsets & reimbursements.
3. Includes civil, electrical/comms, Authority fees, contributions and offsets, landscaping, professional fees and 5% contingency.

Figure 2 – Total Average Development Cost per lot by Council.
Table 2 – Average Development Costs per lot with High/Low Range.

Discussion and Insight

General Commentary

We expected to see Northern and Western based municipalities at the higher end of the cost spectrum due to the rock that is prevalent in those areas. At tender we see higher rates on road boxing, sewer installation, and drainage to account for rock excavation and disposal. Whilst this needs careful scheduling in tender documents, our typical allowance of 20% for rock for rock at the feasibility and due diligence stage works out to be a reasonable allowance.

It is also worth noting that all total development costs above have an additional 5% contingency within them which is standard to our due diligence and cost estimates.  

Specific Commentary

City of Casey developments coming in at the lowest average can potentially be attributed to several factors; lack of rock in the southeast, low cost of external works due to already completed trunk infrastructure, and the highly competitive and protective nature of south-eastern specialised contractors who will fight hard at the tender phase and roll rates to maintain their works pipeline.

It is surprising to see Cardinia as the highest cost per lot however several of our active projects within the City of Cardinia are of lower density or standalone developments which inherently drives up the cost per lot. Subgrade improvement and requirements for double-lift stabilisation in silty sand material adds costs for road construction and can affect level 1 fill works though is not as much as a factor on overall costs as the rock typically encountered in the West and North.

The Greater Geelong pricing is our 3rd largest sample space with higher average total lot counts or overall development size. The economy of scale offered by larger developments coupled with some sites that sit outside of PSPs with lower fees and contributions can be attributed to this cost per lot being $8000 less than the Victorian average. GAIC is not applicable in Geelong saving approximately $6,600/lot on the Melbourne figures.

The expectation for Hume with the extremely steep sites and retaining walls characteristic of Sunbury and comparatively high Melbourne Water contributions makes it surprising that they are not above the average of circa $110,000 per lot. Smaller lots in the Greenvale and more built out area of Hume have pulled the average cost down.

The City of Melton being at the higher end of the spectrum is not surprising with the strict landscaping requirements and inclusion of passive tree irrigation at an additional cost of approximately $1500 per lot. These costs are somewhat offset be the exclusion of re-use water and their associated customer contributions, but generally increased by external works requirements such as pumpstations and interim retarding basins which are usually needed due to flat grades and lack of ultimate outfall works in places.

Wyndham, in a similar way to Casey, as a more mature growth area authority has less external works required to bring forward and service a development however developers are subjected to more onerous, and additional, EDCM design supplements like the increased crushed rock classifications and increased pipe classes due to cover.

The average per lot cost was highest in Whittlesea, due mainly to the likelihood of encountering hard rock and the steepness of the terrain.

We also found costs in Mitchell to fall at the high end of the scale.  Our figures in Mitchell are skewed around the Beveridge Central area which requires major infrastructure works to resolve drainage, sewer, and water services.  Sites further to the north in the Municipality are generally less expensive as GAIC does not apply in many of the rural townships.

We also included our Townhouse Development sites as a separate category to provide the average cost per lot of internal civil works. Medium Density Townhouse developments are highly variable in their individual requirements, but we note that the average internal civil construction costs at $38,000 per lot is far lower than that of a Greenfields subdivision. Pricing for an MD site can be highly variable depending on site conditions and requirements for MRWA versus AS3500 designs can drastically affect the price of a development.

As we stated, nothing beats a good comprehensive due diligence, however the data presented here should be useful for high level assessments and benchmarking purposes. We would be happy to discuss any of the data and assist in developing more detailed cost estimates to assist with your next project.

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