What to do if a developer wants to option your Sydney City Fringe property

With the introduction of the Minns Government’s Transport Oriented Development (TOD) program, developers will be seeking to capitalise on new planning controls. In many cases, they will approach owners about taking an option on their property. For this article, we thought we should explain the program and how options work. As always, if you have questions we haven’t answered in this article, please get in touch.

Here’s a breakdown of the program and key factors to think about before you sign with a developer.

What is the TOD program?

The TOD program focuses on rezoning land around train and metro stations, allowing for the construction of high- and mid-rise apartment buildings. The goal is to increase the housing supply in areas with good public transport access, reduce reliance on cars and promote sustainable living. For Stage 1 the government has identified eight Sydney transport hubs for accelerated rezoning, with plans to potentially expand the program in the future.
The NSW Government will rezone land within 1,200 metres of these eight rail and metro stations to allow for more new and affordable homes.

Stage 2 is what we need to consider first as the areas under consideration in the Inner West are Ashfield, Canterbury, Croydon, Dulwich Hill, Marrickville and North Strathfield. In Stage 2, the planning controls will be amended to promote mid- and high-rise dwellings within 400 metres of metro and rail stations. If you own property within these zones, you can expect developers to come knocking.

Understanding developer options: Put and Call options

If your property falls within a designated TOD area, developers may approach you with offers. These typically involve two main option types:

• Put option: This grants the developer the right, but not the obligation, to purchase your property at a pre-agreed price within a specific time frame (usually from two to five years). You receive an upfront payment (premium) for this right, essentially locking in a minimum sale price.
• Call option: This gives the developer the right, but not the obligation, to buy your property at a predetermined price by a certain date. Unlike put options, you don’t receive an upfront payment. However, you retain ownership and can potentially sell to someone else if a better offer emerges.

Are there risks if you sign with a developer?

While developer options offer potential benefits, you should also take into account there are some significant risks:

•  Fluctuating market conditions: The real estate market can be volatile. If you sign a put option with a fixed price, and the market rises significantly during the option period, you might miss out on potentially higher profits by selling on the open market.
• Market appreciation bias: The housing market generally trends upwards over time. Even if a developer offers a premium above today’s market value, finding a comparable property down the line might be difficult.
• Legal costs: Negotiating and finalising contracts with developers involves legal fees. Ensure you factor these into your decision-making process.

Building your team: Experts for informed decisions

Before entering into negotiations with developers, it’s a wise move to put together a team of professionals to guide your choices (or ask us to help you do this):

•  Experienced real estate agent: An agent with expertise in your area can provide valuable insights into current market trends and potential future growth. We can also help you understand the pros and cons of different developer offers compared to selling on the open market.
• Solicitor with options expertise: Legal representation is crucial. A solicitor specialising in options agreements can ensure the contract protects your interests and clarifies the terms of the put or call option. They can also advise on potential tax implications.
• Town planner: A town planner can assess the likelihood of the developer successfully obtaining the necessary approvals to complete the project. This helps you understand the potential timeline and any potential risks associated with delays or project cancellations.

The bottom line

The TOD program presents homeowners with opportunities but you need to ensure you take care of your interests. Don’t rush into signing with a developer. Consult your team of experts, analyse market conditions (or ask us) and weigh the risks and rewards of each option.
You have the power and you are under no obligation to accept any offer. Take your time, gather information, and make the decision that best suits your long-term financial goals and housing needs.

Let us help you with your commercial property

As dedicated local commercial real estate agents, we can help you extract more value from your commercial property. Please get in touch to discuss your circumstances and assets so that we can give you personalised advice. Whether it’s commercial leasing, management or sales, we’re here to help you with your Sydney-based commercial property.

Contact us at Ray White Commercial Sydney City Fringe