Land sections in Melbourne suburbs

[Chris W]

FYI,

https://www.facebook.com/watch/?v=696744557435750

For anyone who isn't on Facebook the link is to a news item on 7 News re. financial stricken land owners panic selling sections and losing tens of thousands of dollars in the process. Plummeting values is the issue where blocks worth say $400K in 2017 are now worth $350K and banks forcing the hand of the owner to stump up with more deposit etc. One owner was told they needed to find $110K and face daily penalties = 1000 blocks up for sale.

cheers,

Donna

[donna]

So is this something that could happen in NZ?

cheers,

Donna

[Don't believe the Hype]

that's a story about poor choices... the fact it is property is secondary.


In reality the property value dropped by $50k (12.5%) so the hysterical use in the article of the term 'prices plummeted' is a beat up.

[Chris W]

In reality the property value dropped by $50k (12.5%) so the hysterical use in the article of the term 'prices plummeted' is a beat up.

The financial circumstances of the buyer will determine which number they will choose to focus on.

1) In reality, the property value dropped by 12.5%. An 100% cash buyer would likely focus on this number as their equity value has also dropped by 12.5%.

2) Also in reality, most buyers would need to use mortgage financing, so the impact on their equity value is important. The initial equity value of A$40,000 dropped by 125%, and thus would be in negative equity. If the buyer is unable to raise the necessary additional funds to settle the purchase, that 125% loss would be realised / crystallised. In this case, you could say that the equity value "plummeted".

[BlueSky]

Could it happen here, where were you in 2008-9 Donna?. There were sections that were selling for 100K less in Sth Auckland.
So yes it could happen here.

[Don't believe the Hype]

The financial circumstances of the buyer will determine which number they will choose to focus on.

1) In reality, the property value dropped by 12.5%. An 100% cash buyer would likely focus on this number as their equity value has also dropped by 12.5%.

2) Also in reality, most buyers would need to use mortgage financing, so the impact on their equity value is important. The initial equity value of A$40,000 dropped by 125%, and thus would be in negative equity. If the buyer is unable to raise the necessary additional funds to settle the purchase, that 125% loss would be realised / crystallised. In this case, you could say that the equity value "plummeted".

All valid points but from my memory (i didn't relook at the article) what was said to have plummeted was the land value - not the individuals equity so I call a beat up.

It could also be said that sections bought retail like this are likely to be inflated in the same way as new development apartments are often inflated. This is only ever a problem if the market stops rising as paying too much for a new development over a period of time is forgotten as prices rise beyond the premium paid. When things level off or dip the retail pricing of new developments and subdivisions is more obvious. Could it be that these sections were inflated by 12.5%?

[Don't believe the Hype]

Could it happen here, where were you in 2008-9 Donna?. There were sections that were selling for 100K less in Sth Auckland.
So yes it could happen here.

Its not just sections, off the plan has similar issues given the time between contract and settlement. If the market changes or the banks rules change the purchaser can be caught out.

When the market goes cold while you hear many stories of people losing their shirts it is a fantastic time to be in the market. I for one love this market as it allows for those with negotiation skills to really create value for themselves.

[Davo36]

DBTH, about 10 secs into that video the guy says "Land crisis".


And wow, $20k stamp duty on a $400k section!

[Don't believe the Hype]

DBTH, about 10 secs into that video the guy says "Land crisis".


And wow, $20k stamp duty on a $400k section!

Right - land crisis not equity plummeting and while this story is about settling on land. It is also an issue for off the plan builds as the banking environment and value of the finished product can change dramatically between contract and settlement.

$20k on stamps... the below link is the victorian Stamp duty calculator it shows that for an investment property bought for $1million you would pay $55k in stamp duty. Then there is annual land tax.

We pay $400/fortnight in land tax.

[Davo36]

Wow, the lucky country aye?

[Don't believe the Hype]

yeah... that's why I left... the tax was over the top. If you're a low earner in Aus you're better off than in NZ... once you get to a certain level of income you're better off in NZ from a tax POV

52% marginal tax rate, then GST then stamp duty then land tax and CGT applicable to your world wide assets i.e. living in Aus any growth in your NZ properties attacted a GST in Aus... which is applied at 50% of the gain added to your income in the year of sale so if you're already paying 52 cents in the dollar in the year you sell your gain is taxed at 26 cents in the dollar.

NZ by comparison... highest marginal tax rate 30% but to be fair you get to that level faster... higher GST but no Stamps, land tax or CGT

[Nick G]

and better beer

[donna]

and better beer

and wine (notably white wine and pinot noir)

+ less wildlife that kill ya.

I did end up with an OTP apartment in Melbourne many years ago. I did okay with it in the end but there were surprises at settlement and the apartment block sent a few purchasers with multiple units to the wall. It's not new, always thwart with undesirables preying on the naive and I doubt there's been much change in the practice over the years.

cheers,

Donna

[LifeBroker]

In 2008, this happened in NZ because of Lehman's going bankrupt. Ie an external factor.

Could it happen again? We are seeing massive issues playing on the world stage between China and USA. USA is booming, while China is feeling the heat. Will this be a trigger that will influence NZ?

With current government, we have (I can confidently say) an internal factor. 1) foreign buyers ban 2) CGT tax affect have all but eroded business confidence.

Are we seeing things slowing down in NZ? Recent article on stuff headline suggests so.
Home owners sell at a loss in Auckland, Hamilton and Christchurch