The home at 339 Highgate was last sold for $1.2 million and the property will be developed by contractors for TGC Homes.
TGC director George Hercus said the five townhouses would have three bedrooms, two bathrooms and a double garage.
Three of them would come with a lift.
Mr Hercus said prices would range from $1.35 million to $1.4m and he expected them to sell out quickly.
The project comes against a backdrop of slow property value recovery for townhouses and flats.
Last week, Cotality (formerly CoreLogic) released its national property values survey.
Across the three months since March, 62% of suburbs (1652 out of 2661) recorded flat or rising median values for standalone houses, with 22% of those experiencing an increase of at least 2%.
Ngataki (Far North) and Evansdale (Dunedin) were among the 78 localities or suburbs with house value growth of at least 5%, while Dunrobin and Tawanui (Clutha) and Mawheraiti (Buller) also made strong gains — all with median values below $650,000.
In the main centres, strong results were recorded in Dunedin, as well as Kelburn in Wellington (up 4.1%), Temple View in Hamilton (3.0%), and Bethells Beach in Auckland (3.0%).
However, the recovery among townhouses and flats has been more restrained.
In just over half of suburbs (54%), values held steady or rose, and only 16% experienced growth of 2% or more — with a drop of 3% in Wakari.
Mr Hercus was nonetheless optimistic.
"Although the overall property market has slowed down significantly and buyers have a huge amount of choice across the country, the Dunedin townhouse market remains steady for properties that are in great locations close to amenities.
"As TGC Homes covers the investor, first-home buyer and downsize markets and we have bought well in great locations, we have been able to continue to hit our presales targets and have a full pipeline of work out to the third quarter next year," he said.
