Civitas directors, Jenni Mattila and Fraser Neill met with key regional lenders to ask why do banks require borrowers to have a 50% deposit for regional residential housing?
The banks explained if there are not enough houses sold in the previous six months to determine a market price for housing in a regional town they will obtain a valuation report. The valuation is done on the basis of the value of the land plus the cost of construction. There is no allowance for a property developer's profit margin usually 30% for holding costs and construction risk.
So the valuation will in many cases be say 70% of a property developer's price on a new house and land package. In simple terms the borrower needs to fund the usual 20% deposit plus the property developer's premium of 30% that is not covered in the valuation.
In some regional towns with older housing stock the sale price of older dwellings maybe below replacement cost for example say 6 recent sales in the previous six months of 1960s 3 bedroom one bathroom houses sold for an average of $250,000. This is less than the replacement cost for a new construction. The valuation would be $250,000 for the new house - the market price not the asking price for a new house.
Banks cannot change valuation methodologies and must comply with APRA Prudential standards.
The Civitas Model addresses these problems so that regional housing can be made available with the support of local councils and the local community.
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