Developer Offer to SWAP old property for NEW property

Hi Guys,

I am new to this forum and investing.

A developer wants our land to build apartments. (prime location in sydney /10km from city, beach is about 1km, shops, schools, train station, hospital all within 500m to 700m). Developer should be able to build 35 apartments and if they acquire the block next door they should in total be able to build 70+ apartments)

What i am trying to find out is the following

1) How much would the total value of the land be (830sqm)
2) If we opt to do a property swap (new for old & two for one) - How would that work ? (as currently we have a mortgage)

Any thoughts would be appreciated

 

The property swap may not be anywhere near the actual value of the site to the developer.

You need to look at the builder's estimated margin/profit for the entire development and from that determine what the site might actually be worth to them.

Edit - Typically they will want a minimum margin after GST of 20%, however the site might be much more profitable than that.

Start with determining the estimated sale values of all the units and the estimated gross floor area of the building. From the floor area you can determine the approximate construction cost.

Construction Cost Calculator & App | BMT Tax Depreciation

 

No experience with the scenario. But you (and neighbour) could consider going to auction? If there were two developers interested, would probably get a very good price.

 

Contact a valuer to get a valuation and push forward with the adjoining neighbour. This is best approached as a united front. If both blocks are similar, you'll achieve the best price together.

 

So does the developer pay your rent while they build their apartments? Do you want to give up your block and extra space that comes with having a yard etc?

I'm guessing that you live around Kogarah? If you want to see what you could get from a sale, talk to some agents. Or, drive around the area looking at new apartment sites, then you should be able to see what the blocks sold for.

25 President Ave sold for $920k nearly 2 years ago it was only a 470sq.m block.

 

If you wouldn't buy them, I wouldn't swap.

My 2c.

 

what about the stampp duty and the CGT?

 

How did you work out that they could build 35 apartments on your block?
Based on a few assumptions on that number, you're suggesting an FSR of 4:1, which would make your block worth about $5.6million (and more if you joined up with the neighbour).

EDIT: There is no way I would swap. Take the money and find elsewhere.

 

Agree with this - no point exposing yourself to the developer's risk of not delivering.

 

Yep. Take the money and buy elsewhere.

 

Builder paying rent is one of the options

Yes its Kogarah

Personally i am trying to set up my parents retirement - its actually an apartment block (7 partments - 7 owners) - How does this complicate the matter ? (All are willing to sell if the price is right - some are looking at double market value for their portion of the total price, others are considering a swap scenario - personally inclined towards swapping our apartment for 2 of theirs - which should translate to 1.6 times current market value - but i doubt the developers will offer anything that translates to anything more than 1.3 times current market value.

 

What do you do if the developer goes broke? Shoddy building? The end apartments aren't what the developer promised?

 

Yes the new FSR is 4:1 (sitting with the planning minister to get approved) - Height is 33 metres - roughly 11 storey potential

Few have mentioned figures such as 5.3 million or 5.6 million as total price for previously sold sites of similiar size but not similiar height restrictions or FSR - these sites were often sold 1 or 2 years ago

A comparable site is currently being sold - so i am trying to get the price of that

I have also had sqm prices of $8500 to $10000 thrown around by agents

 

Ahh, ok. When you said the dev wants your land I assumed it was a house on a block. In that case, and in-light of what you're trying to do for your parents, the 2 for 1 might be an ok option, BUT there is risk in the developer not delivering as promised or worst case, becoming insolvent. as well as issues around Stamp Duty and CGT.

Am I right in assuming your current unit is your PPOR? You might be better off taking the cash, buying another place for yourself (with as small mortage as possible), and using a portion of the profit to buy an IP. Then your parents could live in the IP and pay you whatever rent you decide to charge them. If they're eligible for the pension, they'll likely be eligible for rent assistance too.

I'm shooting from the hip here though.. I'd be talking to someone who knows more about planning, structuring and tax rules, to help you work through some scenarios.

 

Do your own research. Based on the info you've provided, I dont think you'll even reach $7k/sqm.
In my experience, agents add 20-30% to the sqm price achievable (and try suck you in to act on your behalf). The simple truth of the matter is the average agent has NFI about development blocks.

If you're serious about trying to get the best price, engage a couple of people as a minimum:
1. A solicitor to draw up an MOU for the 7 residents to sign up and agree to sell at specific requirements (eg. Price >$6.5k/sqm, 2 year settlement, 2% deposit etc).
2. A proper RE agent like Colliers/CBRE to act on your behalf who deal with developers all day every day and know how it works.

Of course you'll need to be speaking to your neighbours to get this all rolling. And solicitors aren't free - but you can bargain with them (eg ill give you $400 now, another $600 on an option and remaining from settlement).

Makes it harder with this already being a strata building.. what happens if one refuses to move? At least with freestanding houses the developer will just build around them.

 

@mikey7 isn't there the 75% rule? As long as 75% sell, everyone has to go.

 

Possibly.. I don't own anything with strata so have no idea on that.
Would be excellent for OP if this is the case!

 

Strata laws in NSW were recently revised allowing for redevelopment of strata plans without unanimous owner approval.

You seriously need to consider accepting anything less than an all cash offer, as noted elsewhere what certainty is there that the units are rebuilt? That the developer doesn't onsell the project? Your parents die before the units are built, the new units are smaller/darker/ worse layout? Builders go broke? etc

 

take the cash and buy when the developer finishes, if you really want to the apartments

 

Agree with @TMNT sell to the developer and then buy what you want to buy.

Keeping things simple is most of the time the easiest and most effective way.