fbpx

THE 5 STEP SUBDIVISION PROCESS – NEW ZEALAND

Table of Contents

BACKGROUND.

An August 2020 report by Kiwibank pegged the shortage of affordable homes in New Zealand at an alarming 80,000. The report further predicted that unless the deficit would continue to increase unless there were drastic measures. Due to the housing shortage, there is ongoing interest in the New Zealand market regarding the Subdivision of land, and its advantages from an investment perspective. In this article, we explore in detail the Subdivision Process in New Zealand.

an independent house in a large section of fenced land

WHY IS SUBDIVISION OF LAND CONSIDERED TO BE AN ATTRACTIVE OPTION?

  • Land Price and House Price is at a premium.
  • It is a great way to sell a property and use the money to invest or pay off a debt.
  • Build an additional house for personal use.

WHAT IS SUBDIVISION?

Subdivision, in simple terms, is the process of dividing a section of land into subsections. Each subsection will have a separate, saleable Certificate of Title. Generally, the objective of Subdivision is to alter the land use. However, Subdivision of land does not lead to an automatic alteration of the land’s status. The different subdivision types are:

  • Major Residential Development
  • Infill Development
  • Rural Subdivision
  • Subdivision in sensitive locations
  • Unit Titles
  • Cross Leases
  • Specialized Subdivision
  • Boundary Adjustments

The first step towards subdivision of land is to do the necessary due diligence and understand whether subdivision is allowed on the property. The Local Council is the authority that will have the final say on the same. They will make the decision based on factors like:

  • The size of the property (varies from area to area)
  • The location of the property/ its Zone
  • Whether the existing land use consent has provision for more dwellings
  • Is the ground stable or prone to environmental hazards – slope, inundation, erosion, slippage, risk of falling debris?
  • Any restrictions on existing titles
  • Availability of Vehicle access, Parking, etc
  • Availability of provisions for utility requirements – gas, electricity, etc
  • Whether stormwater or wastewater drainage might be necessary
  • Complaints or Concerns from Neighbours

Suppose the property in question is an inheritance or has multiple owners. In that case, all the owners need to give their consent before going for Subdivision. It is also pertinent to read through the land titles to ascertain any easements or covenants.

  • Land Easements grants someone the right to use someone else’s land for a specific purpose. Examples include right of way for access or drainage or utility pipes.
  • Land Covenants refer to activities that are allowed or not allowed on the land. These might include Subdivision restrictions, rearing or keeping specific animals on the property, using certain building materials, commercial activities, etc.

It is always better to do Subdivisions with the help of professionals. Speak to a Licensed Surveyor and discuss the specifics with a law firm to decide the Subdivision’s feasibility. You might also need to arrange for finance to implement the project. You can find more details on the same under the heading Financing your Subdivision.

THE SUBDIVISION PROCESS.

The Subdivision process consists of 5 steps as detailed below. Regulations stipulated by the Resource Management Act 1991 are the basis for carrying out the first three steps.

(The Resource Management Act 1991 lays out the basic principles of sustainable management of natural or physical land resources.)

SUBDIVISION RESOURCE CONSENT.

Once the local council confirms the property’s Subdivision, you have to prepare the resource consent application. Both permitted, and non-permitted components/ activities will require Resource Consents. The Resource Consent Application needs to be explicitly sought for the non-permitted components. In contrast, you need to lodge another seeking a Certificate of Compliance (CoC) – a go-ahead for all permitted components.

Detailed subdivision plans must accompany the resource consent application. Activities such as excavation, vegetation clearance will require resource consent. They can be carried out only further to obtaining the same.

In spordiac cases, the council might decide to reject the resource consent application. If this happens, it could be due to the risk of natural hazards or lack of physical access to all allotments. Once issued, the resource consent will be valid for five years, within which you have to obtain the survey plan approval. Following approval of the survey plan, the next step is to get Section 224c within three years.

SURVEY PLAN APPROVAL.

The council will evaluate the survey plan and check whether it complies with the resource consent. Timely payment of council fee and the completion of all physical work, including road access, water supply, earthworks, drainage, etc., are part of the evaluation. (The approval process generally takes up to 10 days.)

SECTION 224C CERTIFICATION.

Once the council has approved the survey plan, you need to submit a Certificate to the Register-General of Land stating the same. It would be best if you also mentioned that all conditions stipulated in the subdivision consent are complied with to the council’s satisfaction.

LODGEMENT WITH LINZ.

At the next step, you must submit all Legal Title documents to the Land Information New Zealand (LINZ) for approval. Once LINZ examines the documents and satisfactorily concludes that all legal requirements are complied with, the same will enter the national cadastral database.

CERTIFICATE OF TITLE.

This is the final step of the Subdivision Process. LINZ will cancel the existing Land Title and issue new titles for each sub-section of land as per the survey plan.

COSTS INVOLVED IN SUBDIVISION.

The costs involved in Subdivision include:

  • Cost of processing Resource Consent.
  • Development Contribution Fee
  • Cost for Infrastructural requirements (water, electricity, drainage, etc.).
  • Driveways and Access.
  • Professional Fee – Lawyers, Surveyors, Engineers, etc.
  • LINZ Fee.
  • Tax Implications.
  • Additional Council Consents, if any.

The costs will vary based on the number of subdivisions, the size of each subsection, the zone in which the property is located, the infrastructural requirements, and the region. It is not possible to put a specific cost for Subdivision because of the above.

A Subdivision to create one new Title might cost anywhere from $50,000 – $90,000 anywhere across New Zealand. For example, in Auckland, the average two lot subdivision can cost around $120,000 – $150,000 for resource consent, new Title, and other professional fees.

FINANCING YOUR SUBDIVISION.

Suppose you are looking at a loan to finance your Subdivision. In that case, there are a plethora of options available in the market. E.g., Banks and second-tier lenders.

As an investor, most banks would offer you LVRs at 70%. (LVR as of 8th January 2021, RBNZ is running a public consultation to return LVRs to pre-COVID levels.) The interest rates would vary from 3% pa to 4.99% pa depending on the type of loan, your prior relationship (if any) with the bank, etc. You can choose from Line of Credit loans or Interest-only loans.

Line of Credit or Equity Loans allows you to use your property’s equity to further your subdivision plans. Interest Only Loans suit those who are planning to make short term capital gains by selling off the sections as soon as possible.

Several Second Tier Lenders offer loans for deposits as low as 10%. A few reputed Non-Bank Lenders include Christian Savings Ltd, General Finance Ltd, and Liberty Financial Ltd.

INCOME TAX & GST IMPLICATIONS.

As per IRD, Subdivision and subsequent sale of subsections are not taxable if the following conditions apply:

  • You are not a property dealer.
  • You did not intend to sell the property when you became the owner of the undivided section.
  • The sale does not happen within the bright line period.

Suppose you have started the Subdivision within ten years of acquiring the land and the work is not minor. You will need to pay tax on the profit accrued, irrespective of when you sell the sub-sections. The details on the same are available on the Inland Revenue Department’s website.

GST is a tax on the supply of goods and services. When you are subdividing or selling property, make sure you factor in the GST component. We strongly suggest you speak to a tax professional to understand Income Tax and GST Implications better.

POSSIBLE PROFITS FROM SUBDIVISION.

Account for Loan Amount, Interests, Subdivision Costs, Income Tax, and GST while calculating the profits accrue through Subdivision & subsequent sale of sub-sections.

CONCLUSION.

As a property owner looking to subdivide your property, you would be well served to obtain both resource consent and building consent in one go. This is especially true considering it is a Seller’s market out there as of today. A section of land subdivided into three subsections with individual Building Consent is likely to earn the owner 15% – 20% more profit than what is possible in the absence of the Building Consent.

Leave a Reply

Your email address will not be published. Required fields are marked *