I have just had a bank valuation done on a subdivision that I am doing and the total value was reduced by the GST that I would be deemed to pay. That is, each block was valued at 10% less than the actual value. Has anyone heard of this before? It seems a bit odd to me because I would only have to pay GST the financial quarter after the blocks have been sold. If the bank has written as a special condition that upon sale of each block the mortgage is reduced by $XXX, what do they care about the amount of GST I will be paying the following quarter.
The effect the reduced valuation has had is that the bank will no longer fund the development costs because the valuation came in at much less than I had projected (even though the valuer acknowledged my projected value per block).
Which bank? That bloody bank!
I would appreciate any comments and/or suggestions on how to get the bank to override the valuation.
Cheers
K
Linar wrote:I have just had a bank valuation done on a subdivision that I am doing and the total value was reduced by the GST that I would be deemed to pay. That is, each block was valued at 10% less than the actual value. Has anyone heard of this before? It seems a bit odd to me because I would only have to pay GST the financial quarter after the blocks have been sold. If the bank has written as a special condition that upon sale of each block the mortgage is reduced by $XXX, what do they care about the amount of GST I will be paying the following quarter.The effect the reduced valuation has had is that the bank will no longer fund the development costs because the valuation came in at much less than I had projected (even though the valuer acknowledged my projected value per block).
Which bank? That bloody bank!
I would appreciate any comments and/or suggestions on how to get the bank to override the valuation.
Cheers
K
I have had a valuer drop 10% on the value before
your next step is to get it valued threw 2 well known valuers and approach a new bank
I can understand that the vals would have made an adjustment for gst however they should be stating the methodology used. For instance, if you were to use the margin scheme, then gst is not payable on the entire sale only on the difference between the raw and developed sites. If your cost of development is not too significant then the val would be understated not having taken into account gst previously applied.
It turns out that the market valuation was higher than I thought but because of my company, the total value was reduced by 10% because of the GST I would have to pay. Then the total reduced value was then reduced by a further 20% to make it an "in line" valuation, that is, the proposed value if the bank had to do a fire sale. That makes the final valuation for bank purposes a 25% reduction in the original market value as set by the valuer.
The bank is only doing a 50% LVR on completion. The reduced value means that the bank will now have a 35% LVR.
I'll appeal the valuation and let you know how I go.
Cheers
K
Sounds to me like a bit of miscommunication…
In some cases when you develop property, or if you buy commercial property to owner occupy, you mght pay GST.
So for example if you buy property for $1.0M you need to pay $1.1M Inc gst. The bank lends say 70% of $1.0m (700k) and you need 300k plus costs and GST. Some bankers will give you a short term 100k overdraft to use to fund the GST until you lodge your BAS, get the GST back and repay the short term overdraft.
In his case the GST is obviously not included in the property Val for lending purposes.
Sound to me like either you bank / broker is miscommunicating info; or you have misunderstood: – least likley option is the valuer is out (ableit possible)…
Hi Banker
I have a copy of the valuation and it clearly states that the value of each block is reduced by 10% because my company will be paying GST on the sale of each block. But what you are saying makes sense and I wonder whether the valuer has excluded the GST component because that is what would be done on a valuation for purchases. Either the valuer has gotten it wrong or the bank has given wrong instructions.
I'll put that in my submission to the bank.
Cheers
K
It all turned out with a relatively happy ending. After writing a three page letter pointing out how ridiculous it was to reduce the overall value for the reasons they have given, the bank has agreed that they have enough security in the property to proceed with the original loan.
Cheers
K
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