warning re capitalisation and deferment rates

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    #16
    Originally posted by desamax View Post
    If for instance a flat worth 175k on a long lease with a ground rent of £785pa
    Would the valuation of an identical flat with a ground rent of £50pa or a peppercorn be worth slightly more? If the answer is yes how is the extra valuation worked out?
    thanks.

    A small ground rent will attract a higher capitalisation rate because the costs of collection weigh in more heavily on the smaller rent - very small rents possibly as high as 10%

    capitalisation rates have often not been given a lot of discussion as the type of cases that go to the FTT are those with shortish leases where the rent is now small because of inflation

    A recent case in Bournemouth the ground rent was large and the rent reviewed every 15 years and the rate was around 3.5%

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      #17
      Thanks sgclacy

      I’m looking at short leases with maybe onerous Ground rents, as a cash buyer If I can get the lease enfranchisement started before completion by the vendor, I can flip the property with the profit made once the lease has been extended. One property I have in mind has 59yrs lease £785pa ground rent valued at 175k with an Extended lease. As it stands it’s worth 150kish less for cash.
      On negotiation on the lease price, would I be right in reducing the long leasehold price by about 3-5k as the ground rent has an adverse effect on the capital value of the existing lease. This would reduce the marriage value and give me a bit more profit. Do you think this is viable and would work in the negotiations.
      Thanks again.

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        #18
        Originally posted by desamax View Post
        Thanks sgclacy

        I’m looking at short leases with maybe onerous Ground rents, as a cash buyer If I can get the lease enfranchisement started before completion by the vendor, I can flip the property with the profit made once the lease has been extended. One property I have in mind has 59yrs lease £785pa ground rent valued at 175k with an Extended lease. As it stands it’s worth 150kish less for cash.
        On negotiation on the lease price, would I be right in reducing the long leasehold price by about 3-5k as the ground rent has an adverse effect on the capital value of the existing lease. This would reduce the marriage value and give me a bit more profit. Do you think this is viable and would work in the negotiations.
        Thanks again.
        A lease ext will cost you on a 59 year lease with a ground rent of £785 pa annum and with a flat worth £175k extended something in the order of £28k plus costs

        Therefore there is nothing to be made at buying it at £150k, in fact to deal with the stress and agro you need to be getting it for around £125k and no more

        The basis of the long leasehold price is what the flat would be worth with a very long lease and a nil ground rent


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          #19
          I didn't fully understand how the ground rent was calculated, but I got the impression it was escalating. That could actually increase the premium, as the usual nett present value computation is based on a ground rent that never changes.

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            #20
            Originally posted by leaseholder64 View Post
            I didn't fully understand how the ground rent was calculated, but I got the impression it was escalating. That could actually increase the premium, as the usual nett present value computation is based on a ground rent that never changes.
            We are told the lease is down to 59 years and there was a review in 2014. So I assuming that the rent was adjusted in the 66 years of the term. Therefore the next review is in 28 years time.

            28 years is too far away for it to be much use and relies on movement in capital values and therefore becomes somewhat difficult to predict. Well argued I suppose you could get 5% for the capitalization rate but I suspect unless you can spend some thousands on the preparation of the case in this case I think you would probably accept 6%

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              #21
              The ground rent increases £50 when the property is sold, if sold for more than the last purchased price,
              50p in every £100 over the last sale price is added to the ground rent that's how i understand it .

              So I’m wrong in believing I can ask for a discount on the lease valuation price because of the onerous ground rent, If i go to tribunal.
              I was referring to this tribunal determination..... A bit dated i know but it states a reduced value because of the ground rent.

              https://decisions.lease-advice.org//...-3000/2757.pdf

              Comment


                #22
                Originally posted by desamax View Post
                So I’m wrong in believing I can ask for a discount on the lease valuation price because of the onerous ground rent, If i go to tribunal.
                You can definitely ask, the question is whether or not the tribunal would agree with you - and that could potentially go either way, depending on how well each side argues their case.

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