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Empower Wealth Blog post by Empower Wealth

Property Zoning 101 – Things You Need to Know About Your Investment Property

If you find yourself scratching your head and looking confused when people talk about property zoning, rest assured that you are not alone. Many financially-savvy people have a very limited understanding of this potentially useful tool that can be utilized to help them make smart property investment decisions and avoid bad property deals. Whether you are purchasing your first investment property or your tenth, here are a few things you should know about zoning and how it can benefit you in your investment endeavours.

What Is Zoning?

When you hear the word “zoning” in relation to a property, it typically refers to the nature of the property and its intended use. In effect, zoning regulations establish order and define the legally permitted uses for a specific property or area. For example, properties can be zoned for industrial, business, residential, agriculture and other specific purposes. The reason why it is important to know about property zoning before purchasing a property is that lenders assign completely different policies to each property type based on the zone it falls into.

When understood and used to your advantage, zoning can be a very helpful aspect of property acquisition.

Common Zoning Categories

Investors should be aware of the most common zoning categories and the financial regulations that apply to each. Most zones fall into one of four broad categories: residential, agricultural, commercial and industrial. The zoning in each Australia states differs and each area may be further subdivided as council zoning officers deem fit.

Each zoning category comes with its own regulations that must be understood and followed in order to avoid fines and other financial repercussions.

Zoning Complications

If you do not have a basic understanding of zoning laws and regulations in your area, you could run into a problem when attempting to secure a residential loan. If the property is zoned for commercial use and you are not aware of this fact, you could be very disappointed when you are unable to get a standard residential loan for the property.

Unlike residential loans, commercial loans typically have higher interest rates and a loan-to-value ratio cap of 65%-70%.

Finding out that a property does not qualify for a residential loan can be devastating to first-time homebuyers and anyone else who tries to purchase property without being familiar with how land zoning works. Furthermore, such zoning may restrict you from actually being able to reside in the property, as a place of residence.

On top of that, if you are thinking about a renovation or an addition project, rules and guidelines on what you can do are different for each zone. For example, you might be able to build a second level in a residential zone but you might be prohibited if its done in a heritage overlay zone.

How Understanding Zoning Can Benefit You

The key to using zoning to your advantage is to first understand how it works and how you can utilize it to get the best financial arrangement possible on a piece of property. For example, some buyers avoid properties that appear to be zoned for business or industrial purposes. However, some of these properties may actually be zoned for residential use, even if they don’t appear to be.

What this means for you is that you can reside in the property and potentially get residential loan rates and terms for ideal pieces of property that are passed over by others simply because they don’t bother to check zoning information. If you like a piece of property, it is worth it to check its land zoning status to find out if it is the right match for our needs and budgetary restraints.

Carefully understanding the zoning regulations for a property you plan to acquire, as well as properties around it, will help you avoid unexpected surprises. For example, if you really like a piece of residentially-zoned property, you may still want to avoid purchasing it if you look at a zoning map and find out that the area next door is zoned or has been recently re-zoned for a large commercial development and use.

Understanding land zoning status can also help you plan your own investment property since zoning laws determine the height and square footage regulations.

The Role of Government Zoning Councils

Local governments play a main role in determining how communities will be set up and developed. As such, council zoning meetings are essential for deciding how specific areas of a community will be zoned. These councils typically make their decision after carefully considering a variety of factors. Once zoning decisions are made, land use tables and written documents are set up to firmly establish the zoning rules for a particular area.

Can Zoning Change?

It is not uncommon for government officials to completely rezone entire sections of land during council zoning meetings. In some cases, properties are reasoned because their current zoning status is no longer ideal for their location. A small, 50-year-old home zoned in an upgraded medium-density residential area may be rezoned in order to pave the way for a more appropriate category (such as townhouses) to be built on the property. Rezoning can affect the property’s intended use as well as the type of loan you can receive for the land. Developers can also request that a property’s zone be changed in order to increase their return. In order to rezone land, government zoning councils must almost always go through a formal amendment process.

Title Considerations

In addition to a property’s zone, the property title is also important to inspect prior to making a purchase. In some cases, the nature of a title can affect the value of the property in a positive or negative way. If you want to obtain a loan that is greater than 80% Loan to Value Ratio (LVR), you want to avoid old-fashioned company stratum or share titles for inner-urban buildings. If you are interested in the property, find out if there are plans to get it changed over at some point but understand there will be costs involved and a detailed process to follow.

Checking Your Property Zone

If you are interested in an investment property, don’t sign anything without having a full understanding of property zoning regulations in the area. You can easily check zoning details for a particular property by hopping onto the Land Government website for the area in which the desired property is located for example If you are not ready or if you are not confident to conduct this research by yourself then seek independent property investment advice and rely on a professional’s experience and knowledge to help you make a better decision. By taking the necessary steps to understand land zoning and how it affects property values and lending regulations, you will have an easier time making wise property investment decisions and avoiding bad deals that may not pay off in the long run.

Additional Resources:

If you’ve found this article to be helpful, check out the Property Zoning Links article where we shared a few useful links to help you in your research.

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