With respect Scott,
I think this is true as far as final values go but  strata titled duplexes are very simple for body corporate dealings especially when they are either separated or minimally joined as in this case. I think that the only shared approval between owners in a strata setup would be any change to the joint garage wall. This would have to be common property but this is all – except if the driveways are shared and there are some common underground services. Individual owners could legally do whatever they want to the rest of the house as far as renovations are concerned. I found that selling one of my duplexes was not hindered by being strata titled although the agents say that you would normally expect it to be a minor negative as people prefer to have complete ownership of the property.

Let us know how you go Ian.

All the best

Hi Sogni1,

Question is which is the better way to go ? Sub division or strata title.

I think you would need to strata. Especially if the property only has one sewer connection and if there is common property. eg shared underground plumbing and electricals and joining walls.

The offer: A conditional offer is being proposed. How would that be worded ?

See your solicitor and they will word it for you. You may be able to get the vendor to take it off the market for a week or two so you can do your investigation. Which state are you in?

What exactly can I apply for at Council while the property is under another individuals name/title ?
And what are council going to be willing to provide given it is someone else's property ?

Council should answer this. Go and speak in person with the relevant department that handles strata approval.

Is the offer made conditional on my making the application to council w/ the owner's consent ?

As above, ask if they are willing to give you time to check it out.

Calls to Council have resulted in my being advised that if a Building Certificate has been issued in the last 2 years then an application to strata/subdivide can be made based on 'it being an exempt development application'.

This means that you don't have to lodge a DA but still will be up for some costs. I paid council around $350 to do the checks to enable the strata plans to be signed off. Once this is achieved then the rest is merely processing with the titles office. Not sure of the process if the property is over 2 yrs. I guess you will have to lodge a DA and submit more documentation, advertise the proposal, etc.

Again what rights do I have to apply while the property is in another's name.

See your solicitor

Look fwd to someones expertise !

My expertise is pretty limited to one project in NSW but I hope it helps. Keep your eyes wide open and get sound legal advice from a professional. It's worth paying someone for peace of mind.

Good Luck, Ian  

I calculate only 230k in equity on your figures Amaljaya? LA has given wise advice. Keep below 80%. If you take your potential portfolio of 1180k and take out loans of 80% then you can have access to 944k. Your current loans of 500k would increase to 860k by borrowing 80% of the 450k for the new property. Remember you need to pay also for s/duty and legals. This retains a buffer of maybe around 50 – 60k equity in your portfolio assuming you have all the loans approved to 80%. It looks a bit tight to me and you are putting your faith fairly heavily on the property prices going up.

Good luck with the decision, Ian

I would like to present this interesting article for comment by Ross Gittins | September 5, 2007

Happy reading, Ian

I bet you know that the past 15 years or so have seen unprecedented, almost unbelievable, growth in the debts of Australia's households. It's always easy to find figures on how much we owe and the media always give them much publicity. If you're looking for things to worry about, this one's a prime candidate.

But have you ever thought of yourself as having a balance sheet? Every business has one, of course, but so does every household. It shows the assets a family owns on one side and the amount it owes (its liabilities) on the other, with the difference between the two representing the household's "net worth" or net wealth.

These days it's easier to get figures for the combined balance sheets of all households. And the point of a balance sheet is that it puts your debts into context. So if you're a worrier, keep reading.

A recent paper by two economists from the Reserve Bank, Chris Ryan and Chris Thompson, tells the quite remarkable story of the way the balance sheet of Australian households has transformed since the early 1990s. It's not too strong a word.

At the heart of that transformation is the explosion in household debt. Since 1992, the disposable (that is, after-tax) income of Australian households has grown at a rate averaging 6 per cent a year. But the debt of those households has grown at a rate of 14 per cent a year.

As a result, households' total debt has gone from about 50 per cent of their annual disposable income (which was low by international standards) to about 160 per cent (which is among the highest in the world).

I think what frightens people most about that oft-quoted statistic is that it's gone over 100 per cent. But it shouldn't. The questions to ask are why we borrowed all that money – more than $1 trillion – and what we've got to show for it.

If we'd ticked it all up on our credit cards that would be something to worry about. But though we owe more on our cards than ever, the average balance per card is only $3000.

No, the big reason for the growth in debt has been borrowing for housing. Home loans account for 86 per cent of total household debt, with personal loans and credit cards accounting for the rest. And note that about a third of that housing debt has been borrowed for investment properties, not owner-occupied housing. This is high by international standards and is explained by our extraordinarily generous tax breaks for negatively geared rental properties.

This means, of course, that what we have to show for that debt is a lot of expensive – that is, valuable – houses and units.

We shouldn't be so surprised that our debt exceeds 100 per cent of our income. Think about your first home loan – or your latest. Did you borrow more than your annual income? Of course you did. Many times more. Everyone does. So what?

When you think about it, it doesn't make a lot of sense to compare housing debt with your income. If you suddenly had to pay off all your debt, you wouldn't do it out of your income, you'd sell the house. Not that it's likely to come to that.

No, what you have to pay out of your income is the interest on your debt. Total household interest costs now account for 12 per cent of income, up from an average of 7 per cent in the 1990s. Add a couple of percentage points on top for the repayment of principal.

The sensible thing to compare your debts with is your assets. That's the point of having a balance sheet. While we were doing all that borrowing – which we did mainly because interest rates were suddenly so low – we were pushing up the price and value of homes. The average house price went from more than three times average annual disposable income to more than six times.

Since the early '90s, the value of the total assets held by households has grown by about 10 per cent a year. So whereas they used to be worth the equivalent of 500 per cent of annual household disposable income, now they're equivalent to 800 per cent.

As a consequence, the household "gearing ratio" – the ratio of household debt to the value of household assets – has merely doubled to 17 per cent, which isn't especially high by international standards.

Did you get that? All that humungous debt is equal to only 17 per cent of the value of our assets.

(Note that housing accounts for only about 60 per cent of total household assets. Most of the rest is financial assets, including shares and cash in the bank, but mainly the value of people's savings through superannuation. The value of our financial assets has grown strongly over the years, partly because of the booming sharemarket.)

If you subtract our debt from our assets, you find our net worth is equivalent to more than six times annual household disposable income, up from more than four times in the early '90s.

But let's get back to all that debt. Who owes it? Well, a third of households have no debt at all, while two-thirds of households have no owner-occupier housing debt, either because they've paid off their mortgage or because they rent.

Even so, the share of households with an owner-occupier mortgage has increased from 28 per cent to 35 per cent, meaning the debt is spread over a larger base of payers.

The increase has been greatest among middle-aged households (people trading up to a better house) and the increased share of households with investment property debt is also concentrated among the middle-aged.

The bulk of property debt has been taken on by higher-income households, who have low gearing ratios, low debt-servicing requirements and hold significant financial assets.

"In short," Ryan and Thompson conclude, "the households that have done the bulk of the borrowing appear to be well placed to repay it.

"This is not to say that there aren't some indebted households in vulnerable positions, but their number is relatively low and they account for a relatively small share of outstanding debt"

Hi Tony,

I have just completed strata titling my duplex so will try and remember the steps and costs.

First you need a surveyor to produce the plans for you so you can submit them to council.

To get them through council you will need to satisfy them that the project is completed to final occupancy stage.

Once council approves the plans your solicitor will organise with your bank ( if property is mortgaged ) to release the title and it all goes down with the council approved plans to the land titles office to be registered.

That's it in a nutshell. The cost to me was around 6500.00 for the whole process.

Once the strata title is registered you need to get strata insurance and set up the body corporate, establish Strata Rolls, and hold the Inaugural AGM. We employed a specialist to do this for us for a cost of around $260.  Insurance was around $900 for the 2 Units. Body corp. meeting have to be held anually by law and minutes of the meeting be taken. With my duplex it is simple as they were detached units with no above ground common property so the only item on the agenda will be payment of the insurance. This will be split between the two owners. If you own both then you have to meet with yourself!

Hope this helps,

Ian  

Hey Foundation,

With all respect

In all your analysis of the stats ( and it seems obvious that you've mastered the art )! , you should have a fair idea of when the depression is going to hit? Can you enlighten us all when you believe this will occur ? Will it be 1yr, 5yrs or maybe 10 or 20? You are unwavering in your beliefs but can you substantiate the rationale with a prediction? Will this price doubling cycle occur again? (it seems to be on it's way already in Melbourne and Brisy) If so will it be just one more time? Or maybe we will see two more?

Waiting with compounding interest,

Ian

Goodness! I think that agent belongs in the drawer himself! Or maybe the bin may be a better place!

Hi Max, This is always a tricky time. I am in NSW and recently have been buying a few properties. I was gazumped a couple of months ago. My offer had been accepted and contracts had been sent to my solicitor. We were ready to sign when we found out that a contract had already been issued to another agents client. The vendor had basically not even informed my agent or solicitor that a higher amount had been offered and had issued another contract.

So you can see that until the contracts have been officially exchanged you can't tie anything up. This is particularly important when there are more than 1 agent selling the property. If it was an exclusive listing you are a lot safer . Generally the agent would take the property off the market for 2 weeks after negotiations have concluded. This gives you time to organise your legals and discuss the contract with your solicitor before you commit. You can then have a 2 or 3 week finance clause to protect yourself further. Remember that if you exchange contracts and then cannot get finance approval then you will be paying around $500 for the excercise of drawing up contracts and legal services of both the vendor's and your solicitor. This also recently happened to me when my finance had been approved but then the Mortgage Insurers refused to cover the loan as the land was in a flood plain. This came as a bit of a shock as council had recently approved plans for a duplex development.

Property Investment and development is always full of little hurdles!

Best wishes, Ian

Hi Tony,

Sounds complicated and risky.

I have recently completed a duplex project and am about to build my second. Firstly a good accountant who has experience with property should be able to give you most of your answers and you will need one to do your tax returns anyway. For what it's worth I can give you my tale. I proceeded with the project as an "investment project" ( jointly owned with my wife ) and therefore had the "intention" to hold them longer term. Once you have this intention then you are acting as an investor rather than a developer. Therefore you are not subject to any gst implications. This does not mean that you cannot sell the properties. If they are sold before 1year passes from exchange of contracts on the land (to exchange of the duplex) then you will be up for full CGT. If you wait till after 1 year then you will get the 50% CGT discount. In my case I paid 580k for the total project and after 14mths sold 1 of the duplex and held the other. The one I sold went for 400k. 10k in agents fees meant we got 390k. Therefore the profit on this one was 390k minus (580k / 2) ie: 390 – 290 = 100k. With the 50% capital gains discount this reduces the profit to 50k which is taxable. Since the property is jointly owned with my wife we split it again in 2 and, as a result, we each have to add 25k to our normal taxable income for the financial year and it gets taxed at our marginal rate we land in. So we will probably pay 10 – 15k tax in this situation – an overall earning of 85 – 90k. This is a fairly simple breakdown of what can happen tax wise. We had more incentive to sell because we actually had a capital loss to offset our tax liability. I didn't include the sums here as I didn't want to complicate the figures.
I would also pose the question to those who say "never sell". In this case I could have held both duplexes and accessed the increased equity in the one I sold to proceed with my next project. The problem arises that to access equity you need to get a valuation which is nearly always below the real value. In our case the units were valued at 380k on completion. Therefore I could only access 80% of the value which was 304k. Accessing 304k rather than selling for 400k would have made it impossible to proceed with my next project which will probably profit around 150k. Although I agree with the buy and hold principle sometimes you need to sell if there is good reasoning behind it. (Unless someone out there can convince me otherwise)!!
Hope this helps Tony. Keep analysing but don't put off the decision too long. I don't know where you are investing but I can sense that their is a boom looming on the eastern seaboard of Oz. Developing has created a huge amount of equity gain for us and this will be greatly enhanced in the current rising market. Good Luck!
Regards, Ian