Property development concept: Spirit Level, Ruler, Calculator, Blueprints, Hard Hat

The Hidden Costs of Property Development

The Hidden Costs of Property Development 1000 667 Andrew Stone

Property development can be a lucrative business, but it’s important to be aware of the hidden costs involved. By understanding and accounting for these costs, property investors and developers can make more informed decisions, mitigate risks, and ensure the long-term viability of their projects.

In this comprehensive guide, I’ll break down some of the obvious and unexpected costs associated with property development in Melbourne. 

Here Are a Few Costs to Keep in Mind if You’re Developing Property in Melbourne

Property development concept: Spirit Level, Ruler, Calculator, Blueprints, Hard Hat

Purchase Costs

Let’s get the obvious out of the way first.

Unless you happen to be sitting on the perfect development site, you’re going to have to go out and buy one.

And just like any investment, you need to buy the right type of development site in a high-growth area that’s likely to perform above average in the future.

Your upfront purchase price is going to include the deposit, legal and conveyancing fees and stamp duty. Other additional costs that can fall on the buyer include various rates and taxes, mortgage registration fees, transfer fees, and other miscellaneous settlement costs.

The property purchase price is one of the most significant expenses you will face, so consider partnering with a buyers advocate in Kew East or wherever you’re buying to negotiate the best price.

Planning Costs and Professional Fees

Planning costs and professional fees come into play before you even acquire your development site and they remain in play for the entire active development timeline.

Here are some of the activities you may need to allocate time and money to in the planning phase:

  • Surveying
  • Technical drawings, including floor plans, site plans, and elevation drawings
  • Working drawings for more comprehensive information on structural, electrical, and plumbing plans
  • Building design and Interior design planning
  • Demolition costs
  • Subdivision plans
  • Upgrading or connecting power, telecommunications, and other utilities and infrastructure
  • Soil testing
  • Environmental assessments
  • Traffic studies
  • Other permits and inspections

The professionals you may need to engage as part of the process may include:

  • Land surveyors
  • Civil engineers, as well as environmental, geotechnical and traffic engineers
  • Quantity surveyors
  • Project managers
  • Architects
  • Building designers
  • Buyers advocates
  • Property development consultants

Planning activities and consultant fees are usually charged based on the scope and complexity of your project, so it’s important to factor in these extra costs when budgeting.

Construction Costs

Mini house on blueprints with workers constructing the house

Property development is the ultimate value-add and the best way to generate equity, expand your property portfolio, and create real wealth. But before you can do any of that, you need to get building. 

Sure, the most basic form of property development is just subdividing an empty block of land and calling it a day. But you can get slightly more ambitious than vacant land with dual occupancy developments, townhouse projects, and other construction projects.

The most obvious building cost you will face here is the 25-35% deposit for a development loan. If you have equity in an investment property, you can source your deposit from here, but otherwise, you will need separate cash funds to get the process started.

When dealing with contractors and builders, fixed-price contracts are essential. These agreements outline the cost of construction and provide a clear understanding of the expenses and responsibilities involved. By having a fixed price building contract in place, both parties can be confident that the agreed-upon price will not change, ensuring a transparent and fair process.

Construction projects are notorious for their unpredictability, and unforeseen expenses can arise at any point during the process. Smart developers will set aside additional funds that can be used to cover additional expenses.  These expenses may include:

  • Portaloos, fencing, and other temporary site requirements
  • Flood protection measures if you are developing in a flood-prone area. You may need to install flood barriers, raise the foundations of the building, or take other actions.
  • Bushfire protection measures if you are developing in a bushfire-prone area. You may need to clear vegetation, create firebreaks, or take other actions.
  • Extra lighting for safety and security onsite.
  • Funds to install a driveway.
  • Additional landscaping expenses.

In the current environment, construction and development projects are facing greater financial and timeline challenges than they have in years. This makes it more important to have contingency construction funds than ever before.

Some of the issues affecting construction include:

  • Supply chain problems
  • Labour shortages, partly due to large Government construction projects absorbing a lot of the skilled labour market
  • Fuel shortages
  • Higher demand and higher prices for construction materials (including steel, PVC, crushed rock, and copper)
  • A strained construction and land development sector due to COVID-19 and Homebuilder Grants

Council Contributions

Local councils play a crucial role in the development process. They can ensure everything runs smoothly and effectively, or they can make the process hell.

Partnering with Melbourne property development consultants who know how to navigate local councils will go a long way to smoothing out this process.

Additionally, property developers and investors should familiarise themselves with the council fees associated with the process, as they can significantly impact your project’s budget and timeline.

These include:

  • Development application fees and charges
  • Building permit fees
  • Planning submission fees
  • Other council fees
  • Development contributions and financial contributions made towards infrastructure and services in the local area. 


One of the biggest ways to derail your development project is having no coverage when things go wrong.

Insurance expenses to consider include coverage against property damage, weather damage, fire and flood, theft and burglary on the development site, and more. You may also need to take out some sort of personal or public liability insurance, professional negligence insurance, and general building insurance.

All contractors and consultants that work on your project should also have their own insurance.

Holding Costs

Holding costs are inevitable, but the key to controlling them is controlling your project timeline. It is vital to set a realistic and efficient project timeline from the outset and maintain this timeline as strictly as possible.

If you’re pursuing a dual occupancy development with an existing property, you can rent this property for the duration of the process to offset holding costs with rental income. Many holding costs can also be offset at tax time.

Some of the holding costs you may face include:

  • Council rates
  • Water rates
  • Land tax
  • insurance costs
  • Loan application fees, mortgage repayments, interest payments, and other loan fees
  • Charges for electricity and other services

Factors that may affect holding costs include:

  • Delays between vacant land or property acquisition and the commencement of construction
  • Delays in obtaining permits, finalising designs, or securing finances
  • Fluctuations in interest rates
  • Longer construction period than predicted. Factors such as weather conditions, labour shortages, inefficient project management, and lack of available materials can all increase build time and holding costs.

Marketing and Sales Costs

At some point in the development process, you’re going to want to start making money from your project. And you know what they say – you’ve got to spend money to make money.

You might be looking to sell your development with plans and permits in place or once construction is complete. Even if you’re retaining your development and living in one of the properties, you’re going to want to rent the others.

The fees involved in marketing and selling your property may include:

  • Promoting your development or properties through various online, social media, and print channels
  • Project signage
  • Creating brochures and floorplans
  • Real estate agent fees and commission paid to the selling agent/agency

These 4 Mistakes Can Blow Your Property Development Budget

Two upset architects who made mistakes. One holding a map and looking off into the distance. One holding his hard hat

1. Due Diligence and Feasibility Failures

Just because everything is going to plan, it doesn’t mean everything is going smoothly. If you’ve got your assumptions wrong, you could still end up in a tricky financial situation down the line. You could even find yourself in an unworkable situation due to zoning constraints or financing problems

That’s why it’s so important to get your feasibility analysis right before you make any purchase. A failure to account for all your costs at the feasibility stage could significantly affect your profit margin at the end of the process. 

2. Cost Cutting

Sure, do everything as cost-efficiently as possible – even DIY where you can.

Just remember that the price to fix a mistake can be much higher than what you will save by going down the cost-cutting route in the first place. Even if you can get something done for a cheaper price, consider whether this will lead to project delays that add other costs to your development.

3. Partnering with Industry Rogues

Even if you’re handling the whole development process yourself, there will still be times when you need to turn to the experts.

For example, choosing a builder can make or break your project timelines and your development budget. The same thing goes for engineers, architects, and project managers.

To ensure you hire the right professionals, bring in an expert who can wrangle all the other experts. A well-connected property investment consultant in Melbourne will be able to recommend trusted local professionals – from consultants to building teams.

4. Not Expecting the Unexpected

In property development, you don’t just need to expect the unexpected – You need to actively prepare for it!

Circumstances will change. Delays will happen. Unforeseeable events will occur. How do you prepare for something when you’re not sure what’s coming?

Well, due diligence and feasibility will help you avoid those own goals. But beyond that, you need to work a cash buffer into your development budget to ensure you can get to the finish line and start making your money back.

A contingency budget of at least 5-10% allows you to proactively prepare for any issues that may arise along the way. And if that money is leftover at the end of the project, that’s more money in your pocket and the potential for a better Return On Investment than expected.

You Can Make Money Through Property Development!

Yes, there are many many costs associated with property development, and yes, just about anything can go wrong – even with solid preparation.

But when I say there is money to be made through property development, I mean there is big money to be made through property development.

Plus, I firmly believe it is less risky than property investment overall. But you have to be prepared and you have to get it right.

If you need buyers agents in Templestowe Lower or property investment advisors anywhere across Melbourne, turn to Property Analytics. Our proven process has been designed to help you secure quality investment properties and development sites – and it’s all backed by our own data and analysis.

We plan the strategy, shortlist the properties, and conduct due diligence and feasibility analyses. Then we negotiate the purchase price, secure the site, and guide you through development planning and design so you’re ready to build. 

Chat with our team to tick every box in the property development process.

blue graph

It takes time to buy a good investment property

It takes time to buy a good investment property 1000 1000 Andrew Stone

The average Australian does 7 months of research before buying a new car (AFR). The median $ house price in Melbourne is over $1m but even despite the huge disparity in money invested, most property investors dedicate less time towards analysing their next property purchase than their next car purchase.

How much time did you spend researching your last investment property?

Our clients are busy professionals (in medicine, law, engineering, finance, etc). They’re good at what they do, and they recognise the importance of expertise and how much effort goes into establishing it. It takes hundreds of hours of analyses into market trends, socio-economics, demographics, infrastructure, etc to determine what to buy where for long-term wealth creation.

But data analyses is one thing – actively searching for, assessing, and securing good buying opportunities takes a lot of time, energy and expertise.

Time spent Searching for suitable properties

We’ve established decades-long relationships with selling agents in the areas that we rate highly. Vendors who wish to sell without advertising are more common that you’d think, and who do their agents call with these opportunities – someone they met at an open for inspection the first time a couple weeks ago, or a fellow professional who they’ve grown to know well over years? Some of the best buying opportunities are never advertised, and many property investors miss out without even knowing it.

The off-market purchase opportunities that our professional network provides means that our clients get access to properties that nobody else does.

Because we are so active in the market, we understand at any given time what suburbs represent the best buying opportunities for our clients. Every month, we send hundreds of targeted letters direct to addresses in areas that we rate highly. Results over the years through direct-vendor negotiations have been great. The open-ended authorities that we have in place with long-term clients means that we have credibility when engaging with owners.

And of course, a big part of search time involves constant, methodical management of online portals. We’re on all the property listing websites so that our buyer clients don’t have to be. Sometimes it pays to be the first enquirer on a property, particularly if you know the agent and if the vendor is motivated to sell quickly.

Time spent Assessing properties

We subscribe to all of the paid real estate data aggregators you can imagine, giving us visibility into all properties sold across Melbourne. It costs us thousands of dollars each month to consolidate all property characteristics into our own database. This allows us to statistically estimate the value of properties under consideration – quickly and accurately. But, as much as we love data, there’s much more to assessing properties…

The unique, unvarnished advice that we get from knowledgeable local agents whom we have professional relationships with proves critical in weighing up properties..

What is the property really worth? Do you know of other buyers looking at it? Did you appraise it, and if so what are the real motivations of the vendors? Are there things you don’t like about the property? 

Of course, we examine school zones, proximity to shops, transport, parks, etc to ensure the future capital growth prospects of a particular location. And, we know what to look for to identify likely maintenance concerns in coming years: appliances, windows, signs of damp, guttering, sub-floor, electrical, etc.

A big part of our property investment philosophy involves buying properties with development potential. Even if our clients don’t ultimately develop, a property with development potential will appreciate in value over time more than a similar property without development potential.

Assessing development potential and development profitability is a core part of our service offering to buyer clients

Over 15+ years we’ve studied planning schemes, built relationships with key development consultants (land surveyors, arborists, architects, town planners, etc) and examined thousands of development projects. We know what to look for to determine whether a property is suitable for a profitable development – now or in the future.

Time spent Securing properties

We tell our buyer clients that finding a good investment property requires a strange mix of patience and decisiveness. For every property we ultimately recommend for purchase, there are dozens that we have examined but found wanting. It can take weeks to find a great buy, and sometimes the purchase window is a few hours. If we recognise it as a great purchase, then others will to.

My client once wrote up an offer at the kitchen table of the property at our first off-market inspection. Best decision ever – he did very, very well.

It’s important to be cool-headed and clear about budget though – if someone else wants to overpay, then let them. We’ll move on to the next opportunity. Too often, buyers get emotionally invested in purchasing a particular property, and are naturally reluctant to walk away from a property that they’ve spent hours searching for and assessing. But, that is part of the negotiation process.

We’ve purchased dozens and dozens of properties – before/at/after auction, private sale, expression of interest, off-market, vendor-direct. You need to be willing to act quickly when a bargain presents, but equally you need to be patient when time is required. Countless times, I’ve agreed a reasonable price with a selling agent only for us to drag out a negotiation for days and weeks. Most sellers don’t want the process to be too easy – they are reluctant to sell to the first offer. So a $2.3m fair value price often starts with a $2.0m offer, leads to a $2.5m counter-offer, to a $2.1m reply…

Selling Agents prefer to negotiate with licensed Buyer Agents because we can cut through the crap.

There are many lessons we could share about negotiations, but one of the most important is DO YOUR HOMEWORK. When you’re comfortable that you know all the important details about a property, its location, and market trends at the time, then you’re in a strong negotiating position.

Ultimately, if you’re not spending over a hundred hours researching searching, assessing and negotiating your next property investment, you’re not dedicating enough time into one of the biggest decisions you will ever make. You run too many risks:

Spending too much money purchasing a bad property in a low-growth area with no future value-add potential.

The thousands of hours we have dedicated to building up our expertise is the main reason why so many successful professionals appoint us to find them their next investment property / development project.

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