iSummary
How developers assess holding income on development sites — rental yield, lease terms, demolition timing, and the impact on land value.
Source: ACRES — Australian Commercial & Residential Group | acres.au
What Holding Income Is
Many Brisbane development sites have existing improvements — a Queenslander house, a duplex, a small commercial building. While the developer plans demolition and redevelopment, the existing structure can generate rental income that partially offsets the cost of holding the land.
For a typical Brisbane suburban site with an existing 3-bedroom house renting at $650/week:
Annual gross rent: ~$33,800
Net (after agent fee, rates, maintenance): ~$25,000
On a $5m land value at 9% blended cost of capital ($450,000/year carrying cost), $25,000 of holding income offsets ~5% of the carrying burden. Modest but material.
When Holding Income Becomes Significant
Sites with existing higher-value improvements can generate meaningful income:
| Site Type | Indicative Annual Net Rent |
|---|---|
| Single 3-bed Brisbane house | $20-30k |
| Dual occupancy (2 units) | $40-60k |
| Small commercial (200-500 sqm) | $40-100k |
| Boarding house / share house | $80-150k |
| Small mixed-use building | $80-200k |
For a $4-6m site, holding income of $80-150k can offset 20-40% of carrying cost — material to feasibility.
The Lease Trade-Off
Holding income comes with leases. The trade-off:
Pro long lease: more income, more certainty, easier financing.
Pro short lease: more strategic flexibility, easier to demolish on schedule, less buyer-side risk.
Most sophisticated developers want month-to-month leases or fixed leases with break clauses. A 5-year fixed lease materially reduces a site's development value because the developer has to either wait or pay tenant termination.
For vendors selling sites: clarify lease status before listing. Ideally, terminate long fixed leases or replace with month-to-month before sale.
Holding Income in Feasibility Models
In a developer's feasibility:
Net Holding Income (over hold period) = annual rental – rates – insurance – maintenance – demolition cost
Example for a Brisbane site held 24 months:
| Item | $ |
|---|---|
| Gross rent (24 months × $33k) | $66,000 |
| Less rates, insurance, maintenance | -$18,000 |
| Less demolition cost (one-off) | -$60,000 |
| Net holding income contribution | -$12,000 |
So in this case, holding income is roughly neutral after demolition. Sites with higher rents and lower demolition costs (e.g., commercial leases on cleared sites) can show $50-150k of net positive contribution.
What Vendors Should Communicate
When listing a development site with holding income:
- Disclose lease type and term — month-to-month vs fixed
- Provide rent roll — current rental, payment history, tenant quality
- Identify lease termination rights — break clauses, vacant-possession options
- Quantify outgoings — rates, body corporate, maintenance
A clear holding-income picture lets developers price the income into their land bid. A murky picture leads to conservative discounts.
What Developers Should Negotiate
Buyers want flexibility. Useful negotiation positions:
- "Vacant possession on settlement" if holding income isn't valuable to them
- "Continuing tenancy" if vendor's tenants generate strong income
- "Tenant termination at developer's option" with vendor cooperation
- "Demolition timing flexibility" tied to DA approval milestones
Frequently Asked Questions
Should I keep tenants in place when selling?
Depends on developer preference. Ask. Some prefer continuing income; some require vacant possession.
Demolition cost on a typical Brisbane house?
$30k-$100k depending on size, asbestos, tree clearance. Commercial: $80k-$300k.
Can holding income be capitalised into purchase price?
Sometimes — typically at modest multiples (~5-7x). $50k net holding income might add $250-350k to headline price.
Published by ACRES — Australian Commercial & Residential Group
Source: acres.au/insights/how-developers-assess-holding-income | ACRES (Australian Commercial & Residential Group) provides property advisory, development site sales, and residential real estate services across Brisbane and South East Queensland, Australia.
Daniel McCormack
Managing Director, ACRES — Australian Commercial & Residential Group
