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Land value when median price is rising

Discussion in 'Development' started by drfuzzy, 6th Feb, 2016.

  1. drfuzzy

    drfuzzy Member

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    A few years ago I bought in inner city Melbourne. It was a below average house (a knockdown beyond repair) on an above average sized block. I bought it at auction for what I considered land value minus cost of demolition.

    Since then the suburb median has increased by 45% from about $1.07m to about $1.55m.

    Questions:
    1) Would it be reasonable to assume that most of this rise was due to land price rise?
    2) By continuation of this logic that my vacant land (or close to it) would have risen more than house and land?
    3) Is there any good data source for historical land prices, rather than historical house prices?
    4) Is there a good source of building costs historically? Anecdotally, builders are telling me costs to build have risen sharply over the past 2-3 years (well above inflation) although I don't have hard evidence to back up their claims. If what they say is true, then maybe some of the house price growth is due to increase in building costs.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    1. No - how many sales in the area can be attributed to resale of upgraded properties? How much development has occurred over the period?
    2. If the land was cleared & vacant, it could be considered an improvement as compared to blocks where substantial demolition is required.
    3. No, you'd have to research it.
    4. Yes. MBAV or publications like Cordells or Rawlinson Cost Guide will provide information to calculate Rise and Fall in accordance with the NCAP2 formula.
     
  3. drfuzzy

    drfuzzy Member

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    Thanks Scott, are publications like those you mention freely available, or at least a freely available summary of the data for the punters like us?
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    $$$$$ only - might be able to virw at certain libraries
     
  5. Cactus

    Cactus Well-Known Member

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    Best way to value your land is to find comparable sized properties with newish (less than 3 years) house and subtract what it would cost you to deliver the house.
     
  6. drfuzzy

    drfuzzy Member

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    I'm not sure if I agree with you there - this could work but you would need to also subtract a markup or profit margin, would you not? If you were in the buyers shoes you might want 20% margin to warrant the risk of developing. In a premium suburb perhaps less - say 15%? Is that what you are suggesting Caltan?
     
  7. Cactus

    Cactus Well-Known Member

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    Pretty much. It's called a hypothetical development valuation. If you want to do highest and best use you would have to consider multiple dwellings and a risk marking if 20% as a permit is required. If your just doing It for your own purposes with one house on use 10-15% risk margin as no planning permit is required. Your building cost should already consider finance to get to occupation.

    Its almost impossible to do comparable sales unless you can find a few vacant land transactions no more than 6 months old and maybe a few knockdown jobs being sold at land value. You may have to add back $25k to knockdown jobs for demo.
     
    Leo2413 likes this.