Land Rent in Canberra, pros and cons?

urchin said :

even if the housing market continues to fall i don’t expect the gov’t to willingly drop UV for the land as it will only be shutting down an important source of revenue.

Not going to argue against your opinion on it, but just wanted to state in relation to the above that UVs have already dropped by 5-10% on most blocks in Bonner. I have personally seen at least 10 blocks where the nominal contract price with LDA (the price you would have had to pay if you don’t do land rent) was $15-20k higher than the valuation that came back from the AVO (the government’s own department who decide the values at which the land is rated) about a month after settlement. This is also the price you would then have to pay to the goverment if you wanted to buy back the land (or have your own valuation done).

Must be a pretty good con by the government because it is very popular with both builders/developers and the general public. Apparently every block out of the 98 that were available in Jacka last month were sold as land rent.

its a con, don’t do it.

you own the depreciating asset, the gov’t owns the appreciating asset. sure, you can buy the land back at a future date if you want–but at the price the gov’t has set. even if the housing market continues to fall i don’t expect the gov’t to willingly drop UV for the land as it will only be shutting down an important source of revenue. oh and on top of that you still have to pay rates on the land you don’t own!

this is *not* an affordable housing measure. this is a mechanism by which the gov’t can squeeze every last penny out of potential homebuyers without dropping the price of land/houses. its a very cynical policy.

houses depreciate, and new houses will depreciate much faster (having more value to lose). if you’re certain you’re going to live in bonner for the next 10-20 years that’s probably not a huge issue but if there is any chance you might want to move in the next 5 years there’s a pretty good chance that you will be looking at negative equity as you won’t have appreciating land values offsetting the depreciation of the house. all the moreso assuming that you are only forking out the minimum deposit (and since you’re thinking of land rent i’m guessing this would be the case).

i looked into it when it first came out way back when i was naive enough to think that the gov’t really did care about affordability (i was so young, so innocent) and was shocked at how they misrepresented the whole scheme at the (mis)information session. They extolled the virtues of the program saying that buyers got to “keep the appreciation in the house” while the gov’t kept the appreciation in the land… hmmm…

anyway, i think it’s a terrible idea. i understand all too well the desire to have a house that is affordable and nice even if it is on a tiny patch of land in the middle of nowhere but land rent isn’t the way to do it. the way things are going lately your best bet is to keep saving while the market keeps falling.

frg1978 said :

Another thing to really look into is the actual rent per annum for the land. I looked at some at Bonner and I cant remember the amount off-hand but at the time I remember thinking that it seemed to be almost as much as the repayments on the land would be if you had a mortgage.

Land rent is 4% of the land value per annum, or 2% if you qualify for the discounted rate (under $85.5k income for all lessees, so unlikely). Average price in the newer suburbs (normal ones, not Wright) seems to be about $250k, so you are looking at $10k a year or $833.33 per month. Add on $1,663.26 per month for a $250k building loan at 7% for 30 years, so a total of $2,496.59 per month.

For a non land rent $500k house, you would be looking at $3,326.51 per month over 30 years at 7%.

I think the extra ~32% or $830 a month to get a non land rent house is pretty significant, especially if you believe land/house prices will be fairly flat over the next few years.

Another thing to really look into is the actual rent per annum for the land. I looked at some at Bonner and I cant remember the amount off-hand but at the time I remember thinking that it seemed to be almost as much as the repayments on the land would be if you had a mortgage. So in brief pros – less money up front to purchase so potentially less deposit required, cons – you are still paying “dead” money so to speak on the land rent and you are limited in your mortgage providers.

Think there may have been some other posts about this.

Main cons imo are having a loan over a (theoretically at least) depreciating asset and missing out on potential gains in the land price, and also being limited to CPS and BankMecu to get a loan (and they are pretty tough on their requirements for land rent blocks).

Having said that, land values in new developments tend to be fairly stable or even drop in the first few years (as has done in Bonner). This means it can work out cheaper to land rent initially and then do a land rent payout (conversion to normal crown lease) later on at a lower price than you would have had to pay if you bought up front.

There are also the other benefits of buying new in relation to the stamp duty concessions going forward.

I think it is a good way to get into a new house for less initial outlay, so long as you plan to convert to a standard lease within the first 3 or less years.

Land rent is a great way to reduce up-front costs, but it is advisable to get the dosh together to buy the land, as the buy-out cost increases over time. CIT runs information sessions on land rent that are very good and are required before entering into a land rent arrangement – I would suggest you register for one of those: http://www.revenue.act.gov.au/home_buyer_assistance/land_rent_scheme. From sitting through one of those, there didn’t appear to me to be any traps.