$ per sqm

Hi all,

As part of my on-going DD I'd like to ensure I am purchasing properties that represent good value. Clearly a good indicator is $ / sqm but:

- what is considered a good ratio for house\land build?
- Is it best to measure as a combination of house\land or try to measure land cost and build cost separately. If so what are good ratios for each?
- Is this any different for apartments?
- What other measures are available to determine good value for house\land build (other than local comparable sales).


Thanks!
Andy

 

Is it? I don't really agree with that statement.

 

I would think that would be more a guide line. Clearly a house in vancluse and mt druitt are 2 different price ranges. There are so many other variables with no straight fast rules.

In melbourne, places near the top school zones below 1 million are considered top value. If one was to purchase a land there, even the 135K house and a 200K house in similar sizes wouldn't make a significant difference in price. Location i think is more important

 

I'd like to add that $ / sqm, is really too simplistic calculation and ignores many factors. If you are purchasing an existing dwelling, then you have to add the stamp duty and legals on top. This is a fixed percentage and therefore the more the purchase price, the greater the inaccuracy in your $ / sqm value. Yes, I know this shall only be a small inaccuracy, but since we now know it, let's factor that into our model.

Next, we could stop there if we are paying for the ENTIRE purchase in cash. However, most people are borrowing money from a financial institution, and this costs both time and money.

Lets walk through a simple example with round numbers re-paying P&I:

Land size: 600sqm
House purchase: $ 600,000
Stamp duty: $ 30,000
Total: $ 630,000
Deposit: $ 120,000 (20%)
Principal: $ 510,000
Interest rate: 5.00%
Loan term (Years): 10 (Aim)
Repayments per year: 52

Mortgage payments (weekly): $ 1,247 (Thus, we have a 13 month year)

After 10 years, and ignoring CPI, the house has cost: $ 770,000.00 (600,000 + 30,000 + 140,000 in interest)

Your $ / sqm calculation: $1000/sqm
Increased accuracy: $1,283/sqm (over 20% more!!!)

IMHO, this is still a simplistic model as it doesn't factor in maintenance, rental, and appreciation of the house and land. However, I hope it has illustrated the point.

 

$/sqm is used a lot in some European countries. As others said, it might not be a good indicator.
It could be possibly useful if you compare 2 units of different size in the same suburb or close to each other, but it would not relevant anymore if you try to compare places from different distant suburbs.

 

From what I have seen, $/sqm is a good measure when doing development feasibility assessments ( particularly when trying to compare potential of two sites or when comparing undeveloped value of a site versus developed end-value of a site ).

 

That's correct
This is how I work out feasibility building costs for my deve projects.
It's a matter of working out what specifications are required - basic specs could start at $1100 per sqm, if you want all the fruit much higher.

 

That's a good way to compare prices. I also use the same.

By the way, is there any website which gives the price in $/sqm for listings? I am bored by doing manual calculations

 

Andy, there is no way you can do this apart from maybe vacant land in the same area, you can't even use this measure for rural land reliably.

The problem with resi property once built on, is age, design, size, builder, layout, position etc etc

In some areas you get large variation in valuation of the land component, buy you can look this up, then try and estimate what a building is worth, buildings are like cars, when new they drop the most in the first few years, 5 years or decade.

I just saw a 30 year old house today and a 15 year old, they were both in exceptionally good condition, I was a bit shocked actually, but even with that, it is clear the difference between 30, 15 and new designs.

So it is like looking at cars, you have to judge each on it's merits or lack of, IMO.

 

$/m2 is a comparison of land value only - it doesn't take into account the improvements. If the block is under or over capitalised then this measure goes out the window. .

 

40-60% is regarded as the recommended dwelling to Total Value ratio to calculate rough under/over capitalisation.

 

I like $/sqm as it becomes a starting point for discussion/analysis. If property A is $x/sqm and property B on the same street is $y/sqm then why is this the case? I reckon its a great place to commence DD. I do agree that it shouldn't be the main factor in the decision however.

 

if they are close by, on same street with nothing to change value like high voltage wires close to one, then it should be a good guide, if you compare apples to apples, you can compare. That is if your talking land component.