what effect does a new development have on prices?

[kylie500]

We currently live at the end of a street, in a nicer part of town. At the end of the street is farming land, which has recently been sold. Over the last few days, surveyors have been out there working, and today a whole lot of business people arrived with plans for a new subdivision. Turns out these people are from one of the larger display home/building companies in the area and they have purchased the whole development, with plans to offer most of it as house and land packages. A few blocks will be sold off (probably the ones they don't want!)

Wondering what the effect of this will be on the value of our property.

I see it two ways.

1. Currently, there is no vacant land in this estate at all. If you want to live here (it's probably the best area in this small town) you have to buy an established house. Once this new subdivision is opened, there will be more supply of land available which may mean that our property loses value or remains static.

2. I have read somewhere that a new development can increase the values of the surrounding areas - especially when your house is the one right next to the new area.

This is especially important at the moment because we have just listed this house for sale! Our plans were to use our equity to invest for a while. Now we are wondering if we've made the right decision!

 

[Bill.L]

Hi Kylie,

Many on this forum would argue that you should not sell. If you have owned the property for a few years it is probably +ve cashflow anyway. You could borrow against your equity in it to invest elsewhere. You then have the cashflow from your property and the further investment working for you.

To answer your question about the development, it will probably increase the value of your property, as your place will seem so cheap in comparison.

bye

 

[bbg2003]

I think it might pay to be a little patient and find out exactly what type of development it'sa going to before selling. Go to the council and ask if the have lodged plans.

keep in mind that the developers are going to play the last few years of exceptional growth for all it's worth, extracting every dollar they can from those buyers, which will raise median prices and raise the value of your existing property.

Even if they build townhouses, it could cosiderably increase the value of your existing property, because all prices will be compared to their more than likely overpriced (at first) properties.

imho
bbg2003

 

[geoffw]

I'm with Bill.

You mention that you wanted to use your equity to invest.

You don't have to sell to do that!

If you keep the property, you can borrow up to 80% of its value (taking away what you owe on the property) to use as 20% deposit on another property.

If you sell, you've got selling expenses, plus possible buying expenses for another property. (if it was not your own house, you may have also been liable for Capital Gains Tax).

It sounds to me that you should hang on, and let the new development (hopefully) lift the value of your property. Even if the value does not lift now, it will in the long term.

How many stories have I hear, 10 or 20 years later, "if only I had not sold ..."

 

[kylie500]

This property is our PPOR. We have thought about taking out the equity, but also thought that by doing that we can access 80% of equity, by selling we access 100% (less selling fees). In this particular case, the 20% we leave in is around $50k - which, in this area, we could buy 2 IP's with. Around a year ago, we revalued and increased our LOC to 80% again, and used that money to buy an IP. By increasing our LOC again, we access $32k - one IP. So the question for us is - one IP or three? Will we generate more income and equity with 3 IP's or with this PPOR and one IP?
I'm still undecided - and I realise that by selling we lose the tax free capital gain. This is the main downfall. This new development was not expected to go ahead for around 8 years, so it wasn't really an issue, but now is scheduled for 6-12 months, so this changes things somewhat.
Also, we need a bigger house. Three bedrooms, four kids, the baby (who is now 1yo) is still in our bedroom because she can't fit anywhere else! But we can stick it out a while longer - probably 12-18 months.
In this estate, there are "rules" on what can be built. No townhouses. The land sizes are 700sqm - 1200sqm. Carports and garages must be under roof. Standard fencing between houses, no front fences. There is a lake, and the lakefront houses have other restrictions. Things like this to try to keep the estate a little more upmarket.
Plans have not been submitted to the council yet. Executive homes have purchased the entire new subdivision to develop house and land packages. They have had their subdivision plans drawn up, and yesterday it was the executives from Melbourne who were inspecting the land. Once they are happy with their plans they will submit to council.
Little things make me want to stay here - it's coming into summer soon and our kids absolutely love our pool. We have a wood burning heater and my husband spent hours last summer collecting wood so we have enough to last another two winters. And we really love this house - it was exactly what we wanted. But at that time, we only had three children! We had thought that we may buy an older, larger house and renovate to suit us, which would also create a tax free capital gain, but at the moment it's a matter of finding a suitable house. There is very little for sale in this area.
Since we purchased this house almost three years ago, we have experienced a 44% increase in value.

Still undecided!