Compulsory acquisition order = $$$$?

[ozi]

Hi all,

I came across a property on the weekend which is an old double fronted Victorian in need of some TLC. The property isn’t listed with an agent and the vendor is quite motivated to sell. There are a few negatives with this property and it isn’t the sort of property I would normally go for. The major negatives are:

1) Property is located beside a railway station

2) These is a busy road a few doors down

3) Parking is very limited

4) Affected by a compulsory acquisition overlay

Several years ago a compulsory acquisition overlay was placed on many of the properties along this train line in lieu of the proposed CBD to Melbourne Airport direct rail link. It is not even guaranteed that this rail link will go ahead and I’ve heard it will be 2010 before a decision is even reached. If the rail link is to go ahead, the owners of any affected properties will be forced to sell to the government at fair market value. Market value will be determined as if the overlay never existed.

The owner of the property tells me that because of this overlay, even if he sells the property now for a significant discount, he will still be compensated for any shortfall. For example, if market value is $300k and he sells to me now for $250k, the government will pay him the $50k shortfall plus some additional concessions. I’ve been told that this compensation payout is on-going, so if I then on-sell it for a discount, I get paid out the shortfall.

Obviously this isn’t the sort of property I would buy-and-hold, but I’m thinking it might be a good buy-reno-sell opportunity, or maybe not? The main concern I have is that there will be a very limited market for this type of property and many don’t want to:

a) Live beside a train line

b) Worry about someone forcing them to give up their home some day

Has anyone had any experience with these compulsory acquisition overlays?

Any feedback would be appreciated.

Regards,
Ozi

 

[sailor]

Is it rentable without any renos?
What would it rent for in the meantime?
Sounds like the ideal property for a train spotter!

 

[ozi]

Hi Sailer,

It is rentable in it's current state, but I wouldn't want to live there! It would most likely attract a poor quality tenant without a reno.

A train spotter?

Regards,
Ozi

 

[jingo]

Hi all,

I came across a property on the weekend which is an old double fronted Victorian in need of some TLC. The property isn’t listed with an agent and the vendor is quite motivated to sell. There are a few negatives with this property and it isn’t the sort of property I would normally go for. The major negatives are:

1) Property is located beside a railway station

2) These is a busy road a few doors down

3) Parking is very limited

4) Affected by a compulsory acquisition overlay

Several years ago a compulsory acquisition overlay was placed on many of the properties along this train line in lieu of the proposed CBD to Melbourne Airport direct rail link. It is not even guaranteed that this rail link will go ahead and I’ve heard it will be 2010 before a decision is even reached. If the rail link is to go ahead, the owners of any affected properties will be forced to sell to the government at fair market value. Market value will be determined as if the overlay never existed.

The owner of the property tells me that because of this overlay, even if he sells the property now for a significant discount, he will still be compensated for any shortfall. For example, if market value is $300k and he sells to me now for $250k, the government will pay him the $50k shortfall plus some additional concessions. I’ve been told that this compensation payout is on-going, so if I then on-sell it for a discount, I get paid out the shortfall.

Obviously this isn’t the sort of property I would buy-and-hold, but I’m thinking it might be a good buy-reno-sell opportunity, or maybe not? The main concern I have is that there will be a very limited market for this type of property and many don’t want to:

a) Live beside a train line

b) Worry about someone forcing them to give up their home some day

Has anyone had any experience with these compulsory acquisition overlays?

Any feedback would be appreciated.

Regards,
Ozi

Hi Ozi,

What is the comparable market value of similar surrounding properties, that are not affected by the proposed train line? Would the govenment offer compensation to a level that would meet the value of these 'unaffected similar' properties?

Secondly, what would be your main intention for buying a property like this? Wouldn't capital growth be affected until a decision is made either way in 2010?

Regards Jason.

 

[dave99]

The owner of the property tells me that because of this overlay, even if he sells the property now for a significant discount, he will still be compensated for any shortfall. For example, if market value is $300k and he sells to me now for $250k, the government will pay him the $50k shortfall plus some additional concessions. I’ve been told that this compensation payout is on-going, so if I then on-sell it for a discount, I get paid out the shortfall.

I don't believe this is correct. My parents had their house compulsorily acquired, it was in an overlay for 20-30 years (East Link). The previous owner never got any compensation for it. Compensation only begins once the final acquisition order is made, I believe.

If the rail link is to go ahead, the owners of any affected properties will be forced to sell to the government at fair market value. Market value will be determined as if the overlay never existed.

You are right here. Initially VicRoads (or the acquiring authority) will send you a letter offering an amount. Then the negotiation begins. It is a bad negotiating position for VicRoads because they must acquire all the properties to proceed, and if you don't agree, it goes to court. They also have to pay your legal costs, and magistrates are very sympathetic and ensure you are not out of pocket in any way.

The final price my parents got was about double the original offer and well over valuation, plus all legal and moving costs paid for, and about 8% compensation on top of that.

So I wouldn't worry about the acquisition overlay - it may never go ahead anyway. Airport rail links tend to be underused because the cost of construction means the tickets end up being as expensive as a taxi anyway. I would look more at the fundamentals - if it is close to railway lines, the quality of tenant will be poorer.

- Dave99

 

[sailor]

A train spotter?

Regards,
Ozi

From Wikipedia, the free encyclopedia


Jump to: navigation, search
"Train spotting" redirects here. For other uses, see Trainspotting.
A railfan or rail buff (American English), railway enthusiast (Australian/British English), or (often with a more specialized meaning, described below) trainspotter (British English), is a person who is strongly interested, in an amateur capacity, in railroads. Railfans can be found worldwide.

 

[ozi]

What is the comparable market value of similar surrounding properties, that are not affected by the proposed train line? Would the govenment offer compensation to a level that would meet the value of these 'unaffected similar' properties?

Secondly, what would be your main intention for buying a property like this? Wouldn't capital growth be affected until a decision is made either way in 2010?

Hi Jason,

A similar property on the other side of the rail line sold recently for considerably more, but it was semi-renovated. I believe the price the owner wants is below market value, but that doesn't make it a good deal. There a several other renovated properties currently for sale in the same street for over $100k-$150k more but they are fully renovated, don't sit beside the rail way or main road and are better properties. Its hard to compare.

As I mentioned, my intention would be to buy-reno-sell. I wouldn't hold onto a property like this.

Regards,
Ozi

 

[ozi]

I don't believe this is correct. My parents had their house compulsorily acquired, it was in an overlay for 20-30 years (East Link). The previous owner never got any compensation for it. Compensation only begins once the final acquisition order is made, I believe.

Hi Dave,

Thanks for sharing your experience. You may be right. I am just going by what the vendor has told me and he seems quite confident that what he has said is true. I am yet to speak to the council and will confirm this.

You are right here. Initially VicRoads (or the acquiring authority) will send you a letter offering an amount. Then the negotiation begins. It is a bad negotiating position for VicRoads because they must acquire all the properties to proceed, and if you don't agree, it goes to court. They also have to pay your legal costs, and magistrates are very sympathetic and ensure you are not out of pocket in any way.

The final price my parents got was about double the original offer and well over valuation, plus all legal and moving costs paid for, and about 8% compensation on top of that.

So I wouldn't worry about the acquisition overlay - it may never go ahead anyway. Airport rail links tend to be underused because the cost of construction means the tickets end up being as expensive as a taxi anyway. I would look more at the fundamentals - if it is close to railway lines, the quality of tenant will be poorer.

Your parents must be happy with that! It must have been a pain to go through though.

I agree that the rail link may never go ahead. Cost vs benefit just doesn't add up. From what I've heard the Sydney-Airport rail link isn't making any money. Who knows...

Regards,
Ozi

 

[ozi]

From Wikipedia, the free encyclopedia


Jump to: navigation, search
"Train spotting" redirects here. For other uses, see Trainspotting.
A railfan or rail buff (American English), railway enthusiast (Australian/British English), or (often with a more specialized meaning, described below) trainspotter (British English), is a person who is strongly interested, in an amateur capacity, in railroads. Railfans can be found worldwide.

Ah thanks for clear that up! These train spotters need a new hobby, maybe something a bit more exciting

Regards,
Ozi