Olly Newland: Auckland could be flat for up to 10 years. Consider commercial RE.

[Nick G]

There you go. Start a construction company and look to do JV's with land-holders? I'm just thinking out loud.

[BlueSky]

[QUOTE=Nick G;417840]There you go. Start a construction company and look to do JV's with land-holders? I'm just thinking out loud.[/QUO

Dont know about that Nick.
Unless you already are an established player , margins are very tight and risks are higher especially with interest rates going up.

The sub dividable land is already priced in the sale price , add 220K to subdivide on top of that.

No wonder places like this are coming back on the market

http://www.trademe.co.nz/property/insights/address/Auckland/Bayview/Eugen-Place/14/5fe72fba-f5a2-4f41-9c3c-4d03019b2cef

[Bobsyouruncle]

MHS you don't have to subdivide and you are building to hold so margins are irrelevant. You can turn a 3% property into 6 to 7. Worth doing.

[BlueSky]

South Auckland
PP 900K
5400 Holding cost 1 year
council 200K
$1105400
built 200m2 x $2000m2 = 400K
misc 50
total = 1555400
rent $450 +550 = 1000 pw
gross yield = 3.2%

Cant see it unless you own the property to sub divide

[Bobsyouruncle]

But you wouldn't do that. You would build 2 smaller homes. Relatively easy to get to 6% yield.

[Nick G]

Disclaimer: Not much thought and three beers went into the below... you could hold as a high quality cashflow asset and do something later.

PP $900K
Build 4 x 3br / 1ba 130m2 townhouses... $1.1mil?
$100K associated costs so $2.1mil?
What does a 3br townhouse rent for... $650 pw if new?
So 4 x $650 x 50 weeks = $135,200 = 6.75%... $20K CF positive on 100% lending?
What are these worth now, $800K on the open market if subdivided?
Minus subdiv cost $300K? so net value $3mil? Or would you unit title. I don't know.
Refinance at $3mil at 20% LVR to get capital out. Put on P&I if you want to.
Repeat.
After 2 years sell down (bright line) or split up and sell some etc. Whatever the market is. Or hold because your lending is locked for 5 years and P&I is improving your situation all the time.

If you had a funder that trusted the projected end valuation the project maye be doable with less capital.

Made up numbers but that's something I'd look into. That would be fun. Lending not easy right now tho. I'd start with the architect, come up with some concepts, go find people with that land and see if they want to triple the value of it. There will be some way to make it work.

[Davo36]

Interesting calcs Nick G. Beer does in fact make one optimistic.

For tax purposes, it's 10 years (and after the subdivision, not after building completion), not 2 years. That bright line test was brought in by the government wanting to show it was doing something, without actually doing anything.

And there's no way you can build a 130 sqm townhouse for $275k.

And why would anyone develop anything for a 6.75% return?

I guess there could be some capital gain at the end, but man, a lot of risk etc.

I honestly think this could either work, and money is made, or be 2 years of working for free.

[Anthonyacat]

For tax purposes, it's 10 years (and after the subdivision, not after building completion), not 2 years.

Just another little clarification here. It's 10 years from purchase, unless you were a builder (or associated) in which case it's 10 years from completion of improvements.

But in actual fact in Nick's example there's no time limit. If you buy something with the firm intention to sell down after 2/5/12/X years, that's taxable capital gains, forever.

[Bobsyouruncle]

You wouldn't subdivide or sell Nick, just keep them as rentals.

[BlueSky]

1000m2 I think will give you only 3 lots. Think you forgot interest costs and holding costs.
Allow 18 months from concept to completion if nothing goes wrong
Based on the above calculation with 3 lots still only 3.9% return.
I would do it if I was a builder, to fill in some downtime.

Bit too risky for the returns. should be able to get better returns elsewhere without the headaches.
It made sense with the capital gains we had in the past few years and you bought the land around 500K or even a $1m close to Central in a semi commercial zone.

If I had a spare couple of $M then different story. Thats is why recent land bankers are foreigners with cash . Cash is king.

[Davo36]

For tax purposes, it's 10 years (and after the subdivision, not after building completion), not 2 years.

Just another little clarification here. It's 10 years from purchase, unless you were a builder (or associated) in which case it's 10 years from completion of improvements.

But in actual fact in Nick's example there's no time limit. If you buy something with the firm intention to sell down after 2/5/12/X years, that's taxable capital gains, forever.

Are you very sure about this? From here: http://www.ird.govt.nz/property/prop...-property.html

If you sell a property you will be liable for tax if the sale is within 10 years of building work being completed on the property, and you were a builder or in the building business at the time you bought the property. This is regardless of whether the purchase was part of your building business or not.

And this: http://www.ird.govt.nz/technical-tax...ight-line.html
If you look at the table called Start Dates part way down, it says:

Subdivided land: The original date of registration for the undivided land

So if the start date for the 2 year bright line test is when the subdivided bit of land is registered, then it would be the same for the 10 year rules wouldn't it?

And isn't this the same for situations where you increase the value of the property massively via something like a resource consent? What I mean is, if you get a consent which adds a lot of value, then the 10 years starts from the date of the consent, not when you bought it right?

[BlueSky]

The date of acquisition for subdivided land by an owner is the original date of acquisition of the undivided land by the owner.

[Anthonyacat]

Davo - I'm afraid I don't see the difference between what you've pulled from IRD:

If you sell a property you will be liable for tax if the sale is within 10 years of building work being completed on the property, and you were a builder or in the building business at the time you bought the property. This is regardless of whether the purchase was part of your building business or not.

And what I said:

Just another little clarification here. It's 10 years from purchase, unless you were a builder (or associated) in which case it's 10 years from completion of improvements.

I don't see any contradiction here? We're saying the same thing.

I also think that you've misunderstood what "Subdivided land: The original date of registration for the undivided land" means. To me, that reads "subdivision date is ignored, look back to when you registered the pre-divided land".

As for your question on consents, no; the ten years starts from when you bought it. Once you've held a property for ten years, the only way you get taxed is if you initially bought it for the purpose of sale, or you're a builder/developer (or associated) and it's within 10 years of improvements. You've timed out of the rezoning catch, and the 'long term hold bought while trading' catch.

Off the top of my head, I don't think getting a consent itself triggers anything, I think it's the underlying change in zoning or development law that enables the consent to be approved. But I'd have to look into that further, too hard for an off the cuff lunchtime post.


By all means if you find anything that contradicts what I've said above, let me know!


[strikethrough]EDIT: Sorry, just seen the contradiction.
When I said "after the subdivision" I was referring specifically to Nick's example where I read it as buying and subdividing immediately. Absolutely if this was land that you'd held previously, the ten years starts from there.[/strikethrough]

EDIT AGAIN: Scratch that. I'm re-reading posts in the wrong order. Still confused.

[Nick G]

What if your stated intent is to build a property with 4 units and hold it?

[Anthonyacat]

If your stated intent is also your genuine intent, or at the very least all circumstantial evidence and prior patterns support this position, you should be fine. We don't have a capital gains tax in New Zealand.

But I'm a genuine believer in paying the tax that's due, and if your intention is to flip, that's legally taxable.