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Valuation on subdivison lots

Discussion in 'Property Finance' started by klabat, 3rd Aug, 2016.

  1. klabat

    klabat Well-Known Member

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    Hi PC,

    Was wondering on if a large block of land say an acre for example and was granted a planning permit to subdivide the property into say 20 smaller lots.

    Would the block of land now be valued on the 20 created lots meaning it could possibly come back at an appreciated higher valuation? or would it just be valued on the one vacant lot. Could equity be made through this and extracted

    How would the valuation method be like?
     
    Last edited: 3rd Aug, 2016
  2. Denis Waddell

    Denis Waddell New Member

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    Howdy. If you get planning approval of a sub-division then yes the land then has a better value which you could then on-sell. Similar to getting a DA approved on a lot, and then selling the lot with the DA at a higher value than you bought it for.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    much depends if the deal is on a resi basis or a commercial basis

    Most valuer's standing instructions are to ignore development value, so much so that many wont touch DA approved blocks.

    Commercial, while usually allowing for the uplift will obviously be at a potentially max 60% ish lvr v potentially to 95 % for resi

    ta

    rolf
     
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  4. klabat

    klabat Well-Known Member

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    Thanks for the info, so even though there is 20 individual titles the bank valuations would just consider it as one parcel.
     
  5. tobe

    tobe Well-Known Member

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    Resi it gets valued as one lot until the subdivision actually take place
     
  6. strongy1986

    strongy1986 Well-Known Member

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    Our block in birkdale (brisbane) is 1400sqm with a rennovated and rendered 3 bed brick hous. We have had it revalued a couple of times but it comes in at similar value to a similar quality house on your standard 400sqm block (10 m frontage 40m depth)
    Our block is 28m by 50m
    Granted our place is over the road from the trainline but i would of thought it would still be worth at least 1.5 times the others?
    I guess that proves they ignore development value?
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    It should be valued at highest and best use less any cost/reasonable profit to get it to that stage.
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    If land is titled then it will be able to be valued as 20 different lots and can be sold or refinanced.

    Pre titles it will be valued as one parcel comparitive to similar sites in the same locale.
     
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  9. Dazedmw

    Dazedmw Well-Known Member

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    Bank standing instructions often specifically exclude Highest and Best Use in situations were its a resi lend with subdivision/development potential.
     
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  10. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Thats because they value it "as is" not its future potential as that may or may not transpire for a number of reasons. DA doesnt go through or the intended plans never go ahead.

    So if bank does value at a potential "highest and best use" and it never happens then they will likely be in a negative equity position.
     
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  11. albanga

    albanga Well-Known Member

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    That's because banks understand councils. Nothing is certain until houses are built and new lots officially created and registered at the LTO.
     
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  12. sanj

    sanj Well-Known Member

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    No, if there are 20 individual titles things would be differebt but in the scenario you are proposing there arent 20 titles. There is simoly approval and to get to the final stage of having 20 separate blocks is a looooong way that wikl require a lot of skill; time, money and a touch of luck.

    It would be irresponsible for the bank to act in any way differently to what theyre doing now
     
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  13. klabat

    klabat Well-Known Member

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    Adding on to this if the council valuation for this year comes in higher than market price, can the council valuation certificate be used to extract equity?
     
  14. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    No. The grv from council is unrelated to a finance application.

    You would need to arrange a valuation via the bank / broker that is / has done the finance in order to extract equity.
     
  15. Scott No Mates

    Scott No Mates Well-Known Member

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  16. klabat

    klabat Well-Known Member

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  17. Cactus

    Cactus Well-Known Member

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    Commercial loan based on hypothetical development valuation. They take the end values of the 20 lots and run a development feasibility through a program like estate master and spit out a NPV after aiming for a development profit which if you already have permit and it's a realatively straightforward subdivision could be as low as 15%.

    LVR could be as high as 70% depending on your CV and the site.
     
  18. tobe

    tobe Well-Known Member

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    There's at least one lender I know who will take the council rates valuation. It's rare for the rates val to be better than a bank val though.
     
  19. albanga

    albanga Well-Known Member

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    I have to reassure my wife everytime we get a fresh rates notice with a valuation. I kindly remind her that it is about $200,000+ off the actual value
     
  20. klabat

    klabat Well-Known Member

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    Yes thats what I thought, but it seems like council val has came over by 100k