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Home loans made clear

Trouble with the land rent scheme

By johnboy - 24 February 2011 0

The Auditor-General has announced her latest work: Residential Land Supply and Development.

It indicates there’s been a lot of trouble with the land rent scheme amongst other mismanagements:

— The Land Rent Scheme was introduced in July 2008 as an initiative of the Affordable Housing Action Plan, to allow buyers/lessees to make lease payments for LDA estate blocks over the term of the lease rather than as a upfront capital payment, (4 percent annually on the value of the land, or a discount 2 percent for eligible buyers), thus aiming to reduce upfront costs to buyers and improve housing affordability.

— Under the current Government policy, all buyers of LDA land (regardless of income) can access the Land Rent Scheme and can unilaterally rescind the sale contract prior to settlement without any penalty or conditions.

— As at November 2010, 686 Land Rent contracts had been entered into, most of them were yet to be settled and the value of unsettled Land Rent blocks was almost $133 million.

— Several individuals and companies including investors and builders, hold multiple blocks under the Land Rent Scheme. As at January 2011, the ACT Revenue Office was administering a total of 88 Land Rent leases (54 at the standard rate and 34 at the discount rate to eligible low income lessees).

— The current rate of land rent contract cancellations (12.4 per cent), combined with the LDA practice of supplying blocks within its estates with long settlement periods creates a number of risks to the land development and supply process, and has financial and budget implications, including:
— no certainty for the LDA when entering into Land Rent contracts in terms of sales and revenue;
— the difficulty to re-sell these blocks, if this happens at a time when a range of other estates are beginning to come on line and sell blocks;
— considerable administrative inefficiency as the LDA needs to re-sell these blocks possibly multiple times, incurring additional costs such as marketing and legal registration of their Land Rent leases;
— increased compliance and enforcement costs to ensure individuals and companies comply with the scheme; and
— increased uncertainty with respect to forecasting revenue for the ACT Government.

— There is scope for improvements to the Land Rent Scheme policy and implementation to address the identified risks, including those which could undermine the integrity of the Scheme, and compromise the Government objectives of increased home ownership, especially for low income groups.

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