There are four common ways for a Sydney landowner to unlock a development site: sell it as is, sell it subject to an approval, enter a joint venture, or keep it and pay for development management. Each moves along the same line, from more certainty and less upside to more upside and more risk.
How developers value land
A developer does not start with what your house is worth. It starts with what the finished project could sell for, then subtracts everything it will cost to get there: construction, consultants, approvals, finance, holding costs, selling costs, taxes and a margin for the risk. What remains is the most the developer can pay for the land and still make the project work. This is the residual land value.
Two things follow. First, anything that reduces the developer's risk, such as an approval already in place or a simpler site, tends to increase what it can pay. Second, anything that increases its risk, such as uncertain planning, rock, slope or a long approval path, tends to reduce the price, or shift risk back to you through conditions.
Option 1: Sell as is
An unconditional sale at today's value, often through a normal sale campaign or a direct offer. Settlement follows the usual timeframe for a residential contract.
- Suits owners who want certainty and speed, or need the funds now.
- Trade-off: the buyer prices in the approval and development risk it is taking on, and keeps the upside if the project succeeds.
Option 2: Sell subject to approval
Instead of selling today, you agree to sell once a development approval has been obtained. In NSW this is often documented through an option deed (for example a put and call option) or a conditional contract. The developer usually pays an option fee or deposit, funds the design and approval work with your consent as owner, and settles at an agreed price once the approval is granted or the option is exercised.
- Suits owners who can wait longer for a better price and do not want to fund or manage the approval themselves.
- Trade-off: a longer period before settlement, and the risk that the approval is refused or the option is not exercised. Look closely at the option period, sunset dates, what happens to any fee if the deal falls over, and who owns the approval and plans if it does.
Option 3: Joint venture
In a joint venture, the landowner contributes the land and the developer contributes its expertise, approvals, funding arrangements and delivery. The return is shared according to a written agreement, for example through a profit share or an agreed allocation of the finished homes.
- Suits owners who want a share of the development upside without running the project, and can accept a longer timeframe and shared risk.
- Trade-off: your return depends on the project's success. Governance, decision rights, funding obligations, what happens if costs rise or sales slow, and exit rights all need to be agreed in detail. Tax treatment can differ significantly from a simple sale.
Option 4: Development management
You keep ownership and fund the project, and a development manager runs it for a fee: feasibility, design, approvals, procurement, construction coordination and sales.
- Suits owners who have the capital and appetite for development risk and want to keep most of the upside.
- Trade-off: you carry the funding and most of the risk. The quality of the feasibility and the manager's experience matter more than anything else.
Side-by-side comparison
| Option | Certainty | Share of upside | Your risk | Typical timeframe |
|---|---|---|---|---|
| Sell as is | Highest | None | Lowest | Shortest |
| Sell subject to approval | Medium | Some, through price | Low to medium | Through approval |
| Joint venture | Lower | Shared | Shared | Through completion and sale |
| Development management | Lowest | Most | Highest | Through completion and sale |
The comparison only means something if every option is modelled from the same assumptions: the same planning outcome, end values, costs and programme. Ask for that before you choose.
Questions to ask any developer
- Which entity will sign the agreement, and which businesses will design, build and sell the project? Can their licences and registrations be checked on public registers?
- Who pays for the approval work, and who owns the plans and approval if the deal does not proceed?
- What happens if the approval is refused, delayed or granted with different conditions?
- What are the option period, sunset dates and fees, and are any fees refundable?
- In a joint venture, how are decisions made, how are cost overruns funded, and how and when is the return paid?
- Can I stay in the property until the project is ready to start?
- Have I had independent legal, tax and valuation advice on this structure?
AUD Group compares these options with landowners on one set of numbers. See landowner partnerships, how AUD Group approaches residential property development, and why early buildability changes a feasibility.
This article is general information only and is not legal, tax, valuation or financial advice. Agreements for the sale or development of land should be prepared and reviewed by your own solicitor, with independent tax and valuation advice.