The process of subdivision explained
These days, owning a large block of land in Auckland is like finding the pot of gold at the end of the rainbow. And if you’re not into farm animals and veggie gardening, then subdividing your property could be the way to go.
While subdivision might seem as simple as 1,2,3 – splitting your property, build a new house, then sell or rent that house – don’t underestimate the complexities of the process in New Zealand. There are lots of rules and regulations that you must consider before you even start thinking about how you finance the project, not to mention the management and coordination of everyone involved.
But that doesn’t mean subdividing isn’t possible. When done correctly, subdivision can be a hugely profitable venture. It involves dividing a block of land with a separate legal title for each new section created. It can be as simple as a boundary adjustment between neighbours or a more complex project that requires a wide range of professional involvement.
If you’re considering subdividing your section or starting an investment project, it’s important you understand the costs and risks involved – so you don’t run into any nasty (and expensive!) surprises along the way.
Before you embark on subdividing, you first need to determine the condition and safety of the land you’re planning to subdivide. It’s the best way to raise any costly red flags and minimise risks before you get too far down the subdivision garden path.
Here are the factors you must think about:
- Shape and size – is your plot of land big enough to be subdivided? Once subdivided, will the sections be a regular shape? The smaller or more irregular the land, the more restricted and difficult it will be to build on later.
- Stability and hazards – is your land stable enough to support another dwelling or is it prone to hazards, e.g. slopes, flooding, erosion? This is when you’ll want to speak with a local licensed land surveyor.
- Utilities – any new sections will need to meet the utility requirements, i.e. connections to gas, water and electricity. Also, storm and wastewater drainage may be needed, and existing pipes upgraded to service a new build.
- Vehicle access and parking. There are rules and requirements around driveway connections to public roads, access to rear sites and even speed regulation.
Types of subdivision
There are three types of subdivision that determine your chances of consent – and the costs and risks involved. It’s best to obtain advice from an independent surveyor or lawyer regarding the appropriate ownership type for your situation.
- Fee simple or free-hold title is the most common form of subdivision and involves dividing an existing property into two or more sections. A new certificate of title is created for each section, and the owner holds all the titles.
- Unit title. This gives individual titles to housing units, apartments, or semi-detached dwellings over an existing piece of land. The units usually share common property such as driveways, lifts and gardens. A body corporate must be formed to manage the common facilities, insurance and maintenance.
- Cross-lease is a lease created over each household unit – called a ‘flat’. Each flat owner has shared ownership of the property, and you must get approval from your cross-lease neighbour before doing any external construction or development work.
There are a few other factors that might affect whether you’re legally able to subdivide your property:
- Ownership. If a property has been passed down from your parents or received as will entitlement, there may be multiple owners and stakeholders involved who will need to provide consent before you can begin subdivision.
- Zoning. To subdivide your property, you must meet the requirements of your council’s Unitary or District Plan. These rules determine how and when properties can be subdivided and the standards that need to be met. The rules will vary for each local authority and different rules will apply for residential, business and rural areas.
- Taxes. If you buy and sell a residential property within five years, you’ll pay tax on the income you earn from the sale (a few exclusions may apply) – regardless of your intention at the time of purchase. A withholding tax may also be deducted. It’s important when calculating your return on investment to consider the tax that will be deducted from the profit.
A step-by-step guide to subdividing a property
Step 1: subdivision consent
You’ll need to formally apply to your regional or local council to obtain subdivision consent. The council will consider whether the proposed division of land is of risk to the natural environment and complies with restrictions and regulations.
This can be a lengthy process – especially if you’re not familiar with your relevant city or district. A licensed land surveyor can guide you through this step and help you prepare your consent application.
Step 2: survey plan approval
When you submit your consent application, you’ll also need to include detailed subdivision plans (which your licensed surveyor can help with). The council will then decide whether the proposed plan works within your original consent application. Within 10 days of applying, you should receive approval.
Once you’ve obtained consent, you’ll need a formal cadastral survey to finalise the new boundaries and dimensions, and final positioning of any on-site infrastructure.
Step 3: Section 224c certification
Next, you must lodge a certificate with the Register-General of Land stating that the territorial authority has approved the survey plan, and all conditions of the subdivision consent have been complied with.
Step 4: lodgement with Land Information New Zealand (LINZ)
Then you must lodge legal title documents and survey plan with LINZ for approval. LINZ will check the legality of your documents and check the accuracy of your plan’s fit within the national cadastral database.
Final step: Certificate of Title
Once you have your new Certificate of Title, you can proceed with your subdivision as per your approved plans.
Financing your subdivision
The many costs involved with subdivision
Subdividing land requires a significant investment, and the costs involved can vary greatly depending on several factors.
Here’s what to expect for a standard subdivision of property:
- Consent processing costs are payable when you first submit your resource consent application to the Council.
- Development contribution fees are paid to your local council to help recover the cost of the infrastructure they provide to support growth in the region. Fees are based on the number of residential dwellings involved in your subdivision project.
- Infrastructure connections. Any new sections are required to be connected to water, power, and communication.
- Driveways and access costs are involved to create vehicle access for emergency and everyday use.
- Professional fees are for a licensed land surveyor, planners, lawyers, and engineers.
- Land Information NZ fees are charged for lodging your legal title documents and survey plan with LINZ.
- Tax implications: you may be required to pay tax on the sale of any new residential sections if purchased and sold within five years.
- Additional council consents will be needed for any additional land use or buildings required before you start your building work.
Do your research, get organised – then subdivide
Sure, subdividing property can be a long and complex endeavour – some subdivision projects can take 12 months or more – but with the right professional help and attention to detail, it can be a great way to redevelop your existing property. Whether you’re looking to reduce the size of your property or make a financial investment, find out as much as you can about the costs and risks involved before you get started. That way, even if the process takes time, it’ll hopefully run as smoothly as possible.
To find out more about what your financial options are when subdividing, talk to one of the brokers at Global Finance.
**These are general guidelines and are by no means a reflection of bank or lending policies