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It is a property developer's dream: 21,000 square metres of prime Sydney real estate on the edge of the city's grandest park, 360 degree views across the entire city and harbour, zoned to build up to a height of 32 metres.

But there is just one small problem: at present it is a bus depot.

Mixed signals are emanating from local and state government over the future of Waverley bus depot, leaving the residents of Bondi Junction's western end in a state of confusion.

As questions hang over a potential rescue for the Paddington section of Oxford Street, with businessman Theo Onisforou calling for council borders to be redrawn to save the ailing retail strip, Waverley's bus terminus looks set to become another battleground in the street's chequered history.

Waverley Council has pushed ahead with community consultation as to possible future uses of the depot, despite Transport for NSW rejecting reports that it plans to sell and redevelop the site, positioned on the eastern suburbs' highest point.

The council conducted the second of its community drop-in sessions last week, after launching community feedback at St James Reserve on March 8. The sessions urge locals to give feedback on its West Oxford Street Precinct Plan, which takes in the entire depot area and its neighbouring portion of Oxford Street. The plan focuses on boosting the population density of the ''gateway'' area, with new rezoning giving developers the option to build as high as 32 metres.

Mayor Sally Betts said the state government had indicated it wants to maximise the value of its property and that one day adding a school or childcare centre to the space above the depot would be ''wonderful". She said the council supports the site remaining as a working depot into the future, but suggested the area might also benefit from an art gallery.

In a letter to residents dated April 7, Coogee Liberal MP Bruce Notley-Smith clarified the NSW government position following ''some confusion and a few myths'' over the site. He vowed that he would fight to ensure no development unrelated to public transport takes place on the bus depot. Any development would diminish the residential amenity of the locality, he wrote. ''Waverley Bus Depot is on state owned land and therefore the West Oxford Street Precinct Plan has no bearing on the future of the site.''

An attached letter from Transport Transport Gladys Berejiklian states that Transport for NSW has no plans to sell any part of the Waverley bus depot.

A Transport for NSW spokesman said neither the depot nor space above the depot is in line for redevelopment.

Steffan Ippolito of Oxford Real Estate said the sale of the vast site could yield anywhere from $225 million to $375 million, depending on the number of units proposed.

''It'll happen,'' he said of its eventual sale. ''Given how rare sites like that are in the east, there would be a queue of major listed developers and offshore groups dying to get their hands on it.''