The landscape of infill property development and subdivision in Western Australia ( and Australia as a whole) has changed in recent years. We are in a property development landscape characterised by:
- More complex planning and regulatory controls,
- labour and material shortages (and the associated cost pressures), land scarcity (in the context of available development sites),
- high tax rate treatments (partiality for enterprise or “build to sell” activity),
- constantly evolving and changing financial and lending parameters, and
- evolving population numbers and demographic segments with reducing capacity to afford housing
To operate in this climate , we need to be smarter about how we go about conducting the business of property development in WA. There is still money to be made and financial security to gain, but we need to be monitoring the bigger picture of long term inputs and outputs, to make the best of our property development endeavors. This article looks at a few key points for you to consider, when making choices around what you are going to develop and subdivide, and how you are going to do it to ensure its worth your while.
To begin with, lets talk about the real value of money. The below graph (sourced from tradingeconomics.com) is a great place to begin this discussion . At the start of 2020 when COVID kicked off, Australian money supply ( at M1, the accessible or “narrow” currency that covers the cash the government had printed and was in circulation) was sitting at around 1 trillion AUD (M3, or broad market money, was about twice that). Fast forward to 2026, and money supply is sitting at approximately double this ( about 2 trillion for M1 and just under 3.5 for M3). The story is this; our government has been printing money like its going out of fashion, and handing it out like confetti. This, along with borrowing, is one part of how we have funded covid building grants, covid relief and cash handouts, fund infrastructure projects we cannot afford, plug holes in the NDIS , and secure things like the 5% homeowner scheme, all the while devaluing the currency and adding significant to government debt. We tried to print our way out of the problem when the economy slowed during Covid, and kept going ever since.
The impact of the extra AUD in circulation was unnoticeable for a while at a domestic level, because every other government in the world was printing money at the same rate. The devaluation, for the most part, was not apparent to the average joe. Plenty of countries stopped the printing after covid, but we didn’t.
In real terms, there is around twice as much AUD floating around today as there was 6 years ago, so the AUD is worth a lot less as a result. Anyone who has left the Australia bubble in recent times knows about this. For context, I was in Switzerland in May 2025, where I took out 70 Swiss francs from an ATM. The privilege cost me 165AUD. Anyone who has been to Switzerland knows its about on par with here for living expenses. With 70 Swiss francs, you can get 3 takeaway meals and a few cans of coke, maybe. That would be 70 AUD here for the same, except the AUD is not work that much overseas. So, we still have money, but its real value in broader context is greatly diminished.
Why is also this money value talk important for property developers?
What we are seeing is a reset of what “value” is, in AUD terms. Its Commentators would say that housing in Australia has gone “up in value”, but this isn’t strictly true, at least not as much as we think. Maybe its gone up in “on paper value” domestically because of supply and demand issues and the number of 0’s attached to your AUD dollar value of the property. The real story is that it’s more like it has gone up in price but not necessarily a direct amount of value in terms of buying power. This is mostly thanks to inflation pressures from the early 2020’s, the quantitative easing ( money printing) that followed, and the subsequent devaluation of the Australian dollar. We need to account for the fact that the Australian dollar is worth less today than it was then; the cost, or price housing (and other goods) has gone up, but not necessarily the value at a directly proportionate rate.
So with time value of money in real terms, you are handing over more $ for things, but the value of things hasn’t moved as much, and that remains particularly true if we keep printing money to devalue currency. We then create a consequential wealth illusion effect, which is put into play with other fiscal policy levers and incentives by the government that is keeping people buying and competing over goods and services in a way that keeps drives up the cost of goods and services. Its an endless cycle, that the government won’t admit they are doing a very terrible job of stopping. The reality is that the cost of goods (inc. housing) has gone up, but the value has not gone up at the proportionate rate.
Here’s the full picture. The cost of goods? Up. The cost of housing? Up. The supply of money? Up. The cost of bowing money ? down. Debt has never been more accessible , but it isn’t yours. Buit you can “afford more”, with debt instruments. The net result is the wealth effect, the idea that you can afford a lot more than you really can, and what you have is of substantially increased value to what it was 5-10 years ago. Except it isn’t.
For a large bulk of Australians, household savings, good “serviceability” and access to cheap credit has kept the illusion of affordability at bay. The pinch is starting to be felt as the well dries up now though across the country, and costs keep rising. Which brings us to why this is acutely being felt by so many people, and is important for property developers as well as average households.
The only thing not keeping up with the trend of “things going up”, is wages. Peoples wages and income are not going up at the same rate as inflation of any type of goods, including housing, and its hurting. Pre covid around 2018/2019, there was an ABS report published that forecast an alarming potential scenario that peoples wages were going to be outstripped a rate of 2-4 times by CPI in the mid to late 2020’s, year on year for about half a decade. Housing shortage was forecast then; and that report hadn’t even accounted for the impact of Covid (which it couldn’t). The resultant stimulus spending, quantitative easing and the knock on economic effects of covid probably mean that the forecast rate is now inaccurate. The real figure today is probably worse.
Today, the average Australian can make and save nowhere near as much as is needed to keep up with the increase in the cost of food, fuel, housing and essential services, let alone to invest or buy into other property. What they do save and tuck away is devaluing faster than a term deposit or most conservative managed funds can keep up with.
The few people that have managed to get ahead and go into some property development in recent years? They face new challenges. They are competing with owner occupiers for development sites: mum and dad are desperate to buy the old house on the big block and pay well over, just for somewhere to live. Novice and uninventive Developers might jag a site at very high prices, setting sail with razor thin margins that they must try and maintain in a volatile materials and labour market. They have to hope that the increase in end value for their product when they aim to sell it in a year or two from now (if it even finishes on time) is greater than the increase in the cost to deliver the project.
This is what they have to do to make a gross return that they can brag to their mates about, which was achieved in what could be best described as a 2+ year game of roulette. And then the net tax treatment of proceeds? They’ll be up for 7-10% of sales proceeds lost to GST (depending on the cost base they can net off against), and 25-47% of the proceeds remaining going to company or personal income tax rates, depending on how they set up their “deal”.
Its not super attractive when you break down the reality of doing a “typical deal” and do those numbers. That’s the reality but when the dust settles for people who go about doing things without thinking of the bigger picture, and doing things smarter. The bigger picture is considering the end goal in mind, thinking about how you are going to get there, and doing what has to be done to get there.
So what do we do to work with the state of play and make a dollar?
How to we keep generating wealth and income from property in a volatile, inflationary market where our dollar is turning into monopoly money?
If you don’t have a huge pile of cash that can afford to take some hits and be put into index funds to keep the wolf at bay, the answer is to accumulate real assets that generate income sufficient to keep interest on borrowings at bay and deliver surplus to account for inflation, and perhaps put a bit extra in your pocket.
In our opinion, this means its time to develop lower cost, market affordable, high rent cash flow positive property that:
- puts your cash into something tangible and real, like property,
- allows your moneys value to move with the market by being tied to an income generating asset,
- generates an income as well as uplift, and
- will settle at a stable “real value” at a proportionate rate to the rest of the free market when the dust settles on the true value of fiat currency in the next ten years.
We are in the process of a money system reset, and you need to position yourself in the best way possible to come out on top.
To be successful in the game of property development in a way that meets all of these objectives, we consider the following inputs and drivers to achieve success when we put together a project for a client :
- The value of money. We note that the net return at the end of a 2 year slash and burn type development wont necessarily be brilliant once we’ve done tax or considered the internal rate of return. There is the burden of redeployment, the tax payable, and we crystalize the devaluation event when we pull out our money, with each dollar now being worth less than when we begun. This is a time to develop and hold quality assets like gold, silver, businesses, and real estate. Cash hoarding is pointless. If its real estate your are amassing, it must be generating income. A quality real estate asset that will sustain capital uplift in value over time but is also cash generating is the best way to go. With this in mind, we do extensive modelling during site feasibility to finds prosect mixes on a site that can achieve 6-10% net rental returns on I/O with the right debt and equity ratios, and achieve an end “value” uplift on completion. These assets can increase in value over time, will pay for themselves, and replenish your cash at a rate at or above inflation. And if it all goes splat? You at least have a house to show for it.
- Look at net returns only. Nobody should care about gross returns. We need to effectively plan the tax treatment of our dollars on the back, to mitigate GST liabilities, income tax, or capital gains tax events, as best as possible. To this end, we ensure the right SPV’s are set up at the start, and consider the net flow of income in all our feasibility modelling . Our preference now is developing quality long term investment folios of good rent generating residential product mixes. And we are not talking about negative gearing things to the hilt- that’s just offsetting a big capital gains tax event to the end and is a fools errand. Its building equity, and building income sustainably, over time, and re-leveraging parts of that folio to add to it. You don’t pay tax on borrowings of your folio, but you do when you sell properties to buy the next one. Until the wealth base is big enough, the former approach is the way to go.
- Deliver diverse and affordable housing . Affordable doesn’t mean cheap, its means good product that meets the housing needs of demographics that are poorly catered to in all sort of different areas and suburbs and regions of metropolitan Perth. What this product is and where its needed required careful and diligent research. At the moment, the rental returns ( and valuation growth results) on “affordable” product, like small 1 and 2 bed single storey units in inner city blue chip suburbs, is far outstripping their larger dwelling typology counterparts. And with one and 2 person households being the fastest growing demographic in Australia, this will continue. We do extensive feasibility modelling of options of a site when we work with our clients , considering small, single bed, accessible and ancillary and dual key dwelling mixes, not just villas and townhouses. The best returns are in diversity, with smaller more affordable product often offering optimum return on investment .
You can learn more about tax treatment ,dwelling typologies, feasibility modelling and optimising ROI in our online books and courses
To discuss optimising ROI, doing a feasibility studies, or the best ways to develop a property, contact us and we can get in touch to discuss.
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