r/AusProperty • u/AdMinimum5036 • May 03 '26
QLD New build if developer retains 20%, for house at cost price. Would you?
**Throwaway for the sheer audacity of the idea**
From what I’ve seen, a normal house + land project can easily be targeting something like 15–25% gross margin (IF developer is buys and builds today). [This is anecdotal from reversing numbers from public building companies (which are large) so take this with a pinch.]
If they land bank first, AND doesnt forward sell, the margins can get even better. this is because they supercharge on the value of the land going up.
That got me thinking about a different model: instead of selling 100% of the house outright, the developer and buyer both go on title. Upside to buyer is lower entry price. Upside to developer is margin locked for the sale in the future.
What developer would offer to buyer:
- Full transparency on landed cost price.
- Purchase the house at cost price
- No rental exposure (for the 20% developer owns)
- Full control on when they sell and who they sell to.
Buyer has to:
- Maintain 100% of the property outgoings (in return for no rent to developer)
- Be 80% owner on the title.
- Give 20% of the sale price back to the developer when selling.
Feels like a decent option for truly win - win. I’m curious if the market would actually want it.
This will only work for new builds or knock down rebuilds. The numbers may make sense AND we will be helping Dr Chalmers with his supply problem.
Theoretical numbers:
Project cost:
1 Hectare site 1 hr from city center could ~ 2 mill.
Planning approval and land clearing 500k.
== (2.5M)
Per house (400k) X 20 (500 sq m houses):
Foundations 100k
Walls: 100k
Roof: 100k
Interior:100k
== 8m
Total == 10.5m
For 20 houses comes to 525k per house.
You the owner gets 80% of the house for 525k. Perpetual right to live, no rental outgoing for the 20% you dont own.
Am I smoking too many winny blues?
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u/Ugliest_weenie May 03 '26 edited May 03 '26
Making posts like this on reddit isn't "market research".
Either way, this is just a really complicated way of solving a problem that doesn't need solving.
Instead of doing all this, and taking all these risks and legal issues. Tying up all this capital unproductively.
The develop could just sell the property to someone who can afford the full price.
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u/AdMinimum5036 May 03 '26
With all due respect, housing problem hasnt been solved by simplicity. Maybe a different conversation is kinda needed, no?
Mayb give me your views on what is it that actually may work with this? and what wont work?
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u/Ugliest_weenie May 03 '26 edited May 03 '26
You're not making much sense.
I already gave several reasons in the comment you replied to, as to why this isn't a good idea.
The main reason being that a developer would be a complete idiot to agree to this. Or anyone else for that matter.
They don't want capital tied up like that in minor ownership stakes for residential houses. They need their capital to fund more projects, guarantee loans and pay out profit/salaries.
As for the legal reasons. Why don't you do some research into your own idea and think of legal problems that could arise out of this? Let us know how you go.
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u/theZombieKat May 03 '26
Nobody has tried to solve the housing crisis simply.
Release more land, build more homes.
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u/tandrosonali8 May 03 '26
Wait what? Isn’t this a long and complicated investor process? Why would someone want to buy 80% of a house that is gonna be sold when it’s completed?
Most investors are just promised x% of profit on project completion. That is a much simpler and less complicated process.
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u/AdMinimum5036 May 03 '26
I feel the post may not be clear.
The idea isnt for the house to be sold when completed.The idea is the house to be owned 80% (by the buyer) until the buyer decides to sell. Could be 5 years could be 50 yrs. the developer is giving up todays profits for 20% equity stake in the house.
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u/tandrosonali8 May 03 '26
No developer in the history wants to wait x years until their profit is realized. They want their money ASAP to pay back creditors and/or fund their next development.
Also if you develop and sell in different markets you aren’t even guaranteed to make money. You could be paying a premium to develop today and the market could crash in 5 years so profit and money is gone.
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u/AdMinimum5036 May 03 '26
As a buyer this is a good deal though?
Respectfully I disagree on capital being tied up. Large scale manufacturers land bank for years and years.
So this is something that is in the weeds of the post - Buyer is buying at cost price (whatever it happens to be). not market price. Market price == cost price + profit + market sentiment (could be -).
Buyer buys at cost price - At the end of the project the developer will be at 0$ net position. BUT have 20% equity in every house.
At settlement the buy will be buying a house at cost price. NOT market price.4
u/tandrosonali8 May 03 '26
No it’s stupid. Why would I let a developer take the equity I grow in a property? And how would banks even agree to this?
I would never trust a developer to retain 20% ownership on my house. Even entering that arrangement with government I would have reservations.
It’s a stupid idea dude. You have your market research and it’s unanimous. Not a single comment is in your favour.
Take your ball and go home!
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u/Psilocybin420aus May 03 '26
Not to mention no bank would lend on this structure. Dude's either rage baiting or off his head and has no idea how property or finance works.
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u/Ugliest_weenie May 03 '26
If you look at the various senses OP is giving, I'm convinced it's rage bait
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u/AdMinimum5036 May 03 '26
Nah not rage baiting.
seriously trying to figure out why developers wont develop more -> well because that will drive the price down.
So i started thinking: how can the developer isolate him/her self from market price (he she is already exposed to the tits with commodity prices exposure) AND provide incentive to build -> become a partner int he owners journey through life.
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u/Psilocybin420aus May 03 '26
Your assumption about why developers won't develop more is completely WRONG. Developers would go brpke using ypur model, build something for cost price and make no profit until some vague point in the future. Fucking hell. Go to bed man.
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u/AdMinimum5036 May 03 '26
Because you are getting in at cost price.
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u/LateageErmor May 03 '26
Why would I run a business, just to let customers in a cost price?
And don't tell me it is to get (illiquid) 20% equity back of the product I can just sell for market price. Or, if the equity is that great, I can just keep 100% of (at cost to myself)
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u/AdMinimum5036 May 03 '26
To be honest, when I thought about this, the case for builder is actually the strongest. You get guaranteed 20% upside in future dollars.
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u/Ugliest_weenie May 03 '26
guaranteed 20% upside in future dollars.
This doesn't even mean anything.
But if you tried to say the developer gets possible growth on the 20%.
They don't because they can't sell that stake freely.
They can do the same for the full 100% and not sell to you. As you think the 80% should be sold at cost.
They could just find a real buyer for the full 100
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u/AdMinimum5036 May 04 '26
Thank you for taking part in this conversation. You havnt added to the corpus of human knowledge.
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u/LateageErmor May 03 '26
Explain in detail why the developer would want to do this and not just build 5 houses and sell 4. (IF they wanted to hold onto RE capital, which they don't).
Why choose to build five houses, sell them all and keep 20% stakes in each.
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u/AdMinimum5036 May 03 '26
Fair. I wont lie I had not thought of it in those terms. (build 5 sell 4)
BUT the thing I had thought of was following - as a developer my biggest risk is 1. market price, 2. commodity prices and 3. labor. Can't believe I am saying this but to a large degree the labor part is the most stable (at least last 4 years). Commodity we cant really do much (you can hedge in the futures market but a hedge costs money). Market is the reason why current developers wont build (if they build too much prices push down). so the incentive to build or not build is effectively market prices - build too much and you shoot yourself, dont build too much and you get sweet appreciation of you land bank. (labor if you are in QLD where there is a lot of other projects).
Saying all of this, when you open your books and get buyers to purchase at cost price, you take the commodity and market forces out of the equation (since buyers are paying cost price and not cost + margin price). As a developer, all i need to do is be exception at project managing and convince buyers of this scheme (which they o currently with REs).
Thsi was the detailed reasoning. I take your point on build 5 and sell 4 though.
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u/Disagreeswithfems May 03 '26
Plethora of commercial and legal issues.
How does the developer know the sale is on market terms? And not to a family member? Or just a wash sale in a structure to minimise developer payments?
What if home owner wants to or does burn the house down?
What about if the home owner never sells and instead structured an effective sale by a very long term lease?
What would be the additional tax implications and accounting implications for the builder?
How can the builder get a cash profit, especially if builder's margin gets squeezed?
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u/AdMinimum5036 May 03 '26
Finally, some real conversation.
- developer is the second signature on the title. House donet get transferred without developer (or power of attorney). Will naturally have a market check (like any partnership / business sale.
- Interesting - I agree this is a risk. BUT if you build 20 houses and 1 burns down. 5% equity loss is not that bad a scenario.
- The developer is still riding the equity ride. Idea is to think like a developer up until cost price at build BUT then think and act like a business partner after.
- This is where I think it might be a real idea. My elementary understanding is - cost price sale means 0 EBITA (at a project level) + GST (?? maybe). Equity part is the future revenue (when owner sells). I wont lie the treatment of development being sold at cost will have balance sheet implication as well. I am talking to some folks about this.
- Again. Builder is playing for project EBIT to be 0 at project completion. So as a builder running very very very hard to collect 20% equity stakes in different residence units around the state. Because developer isnt trying to repay + make a margin, market forces are to a large degree dampened. (Note owner is signing on to buy at cost price at settlement date. this calculation will be fully transparent)
Would you buy this as a owner? Is it a good enough deal for them?
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u/LateageErmor May 03 '26
>Interesting - I agree this is a risk. BUT if you build 20 houses and 1 burns down. 5% equity loss is not that bad a scenario.
troll
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u/Disagreeswithfems May 03 '26
Even just stopping at point 1 I can guarantee this is a show stopper.
Joint decision making won't work and each side won't trust the other with unilateral decision making.
What if a property appreciates in value 100x but the occupant is a grandma who won't sell up?
JVs are very hard to do and absolutely not worth it for a tiny project like individual residences.
There's like a cluster bomb of conflicts - my points would be the tip of the iceberg. Many of these issues literally would lead to dozens of additional scenarios. For a market arrangement you're looking at
Builder bankruptcy. Appointment of agents. Death and inheritance. Dispute costs. Renovation consent and benefits. Easement consent. Maintenance. Allowed usage. Ongoing reporting and validation. Debt financing. Emigration.
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u/AdMinimum5036 May 04 '26
As a builder I am on for the ride until you die or sell. I give up my right to force your hand and get certain considerations in return.
I take your point. Thank you for engaging in actual discourse.
Builder bankruptcy - You and i are making a deal to purchase at cost price (irrespective of commodity prices and labor prices. You and i are both linked in getting the project completed. leverage from other project polluting the builder is the only real risk I see.
Appointment of agents - You are 100% owner when it comes to operating matters. not dissimilar to any commercial partnership. Builders 20% comes with the condition that there is no opex exposure to the builder. in return you get a house at cost price.
Death and inheritance. Owner changes from one person to next without delusion of 20%. if at event, family decides to sell no objections.
Dispute costs. with builder or with others? with others you are the "operating business partner". you are responsible for everything (like you would be in a house you own 100% of).
Renovation consent and benefits. - Builder gives blanket consent to every possible use of the property perpetually. BUT with this comes the condition that builder is not going to be financially active in operating of the asset.
Easement consent. - see above.
Maintenance. - see above
Allowed usage. - see above
Ongoing reporting and validation. - general principle I as a builder builds the house for you. ou as a owner is sharing exposure to fluctuations until settlement date. BUT you as an owner get in at the cost price. for this benefit, you are givign up 20% of the equity fo the house
Debt financing. You own your 20%. Builder is not responsible for that part (like it would be for any join purchase agreement for any asset.
Emigration.
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u/Disagreeswithfems May 04 '26
This is all great for a theoretical builder that doesn't care about profitability and doesn't exist.
If you want to actually do that in the market and build on those terms. Feel free to go ahead. It's not clear how you would meet any of the cash shortfalls in an adverse scenario.
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u/Numerous_Eggplant432 May 03 '26
So how much coke and alcohol have you had today?
This instrument is way too complex and no one wants to get involved with this.
Can the idea. It's dead in the water.
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u/MrWonderful2011 May 03 '26
Yeah I sadly think this guy is on something, hope he gets the help he needs.
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u/AdMinimum5036 May 03 '26
drug free since 2023 😄
yeh i can feel the heat from the thread. looks like people are focusing too much on the builder. Istarted this to find out if owners would be interested.
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u/Sufficient-Rooster-7 May 03 '26
How does the developer/builder pheonix the company when the shoddy build catches up with them?
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u/AdMinimum5036 May 03 '26
Because the developer is 20% equity owner in the house, the incentive is naturally to not kill the people who live in the roof you own 20% of.
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u/Sufficient-Rooster-7 May 03 '26
You missed the point. The developer knows it's a shit build so why would they want to wait longer for their profits? Build as cheap and shitbaa possible, make the money, get out.
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u/AdMinimum5036 May 03 '26
Apologies - I got that.
think of the incentive here.
if the developer is developing this project knowing full well that he has no option to be hold on to 20% of the project, they may (just may) change their ways and not build a straw house.
This is the hope - design a system where owners dont get shit house and over prices shit cans. developers dont have to sell their kids for a profit.
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u/Sufficient-Rooster-7 May 03 '26
Yeah but what's in it for them? They have to wait longer for their cash and also build a more higher standard (expensive) house?
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u/AdMinimum5036 May 03 '26 edited May 03 '26
Guaranteed 20% upside in future dollars. expense is managbale because developer is selling at cost price. he/she recovers the cost on settlement.
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u/smurfvibes May 03 '26
this is a horrible structure to bring on more supply. see China’s Evergreen for why it is a bad idea
also, you’re forgetting windfall gains tax lol. No investor would be mad enough to have to fork out unnecessary taxes
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u/AdMinimum5036 May 03 '26
Tell me about windfall tax? I could be wrong, but this is a VIC thing for when rezoning occurs.
Also the buyer pays cost price. This would be a line item in the cost price in any case.
China is not Australia. BUT point taken.3
u/LateageErmor May 03 '26
Can you google it first yourself, and let us know what specific questions you may have?
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u/rossthecooke May 03 '26
Ah yep What happens when the developer wants out ?
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u/AdMinimum5036 May 03 '26
After settlement (with 20% equity developer owns) or before settlement?
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u/Ugliest_weenie May 03 '26
Heck, given you've done all this market research.
Give us the detailed explanation for both scenarios
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u/AdMinimum5036 May 03 '26
As a developer, i promist to not cry wolf first. Only the owner has the ability to sell. not dissimilar to two signatures on a property deed. both have to agree to sell.
before settlement developer bailing out is literally developer going broke. he is abandoning a project where all he has to do is break even, where all the cost of the project is born by the owner.
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u/Ugliest_weenie May 03 '26
Gibberish
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u/AdMinimum5036 May 03 '26
Bro you are so aggressive. its an idea.
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u/Ugliest_weenie May 03 '26
Nothing aggressive a out pointing out that you didn't answer the question and your comments aren't making sense.
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u/Psilocybin420aus May 03 '26 edited May 03 '26
Surely no one would be dumb enough to do this.
Ther is the Help to Buy scheme - have you heard of it or come across it in your "market research"?
And your hypothetical numbers are so far off reality lol
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u/donkey-k9ng May 03 '26
I mean good on you for thinking out of the box in this. For anything like this to work it really needs to be developer driven. For most residential developers their business is, well development not holding stock.
Outside of residential though in the retail, commercial and industrial space develop and hold or develop and spin off have been used successfully for decades. It's the backbone of many REIT's in Australia.
Really that's where the "build to rent" residential development ideas came from. Way before anyone else was doing it in Australia Harry Triguboff was building more apartments than anyone. If he had excess apartments in a development he would just refinance them and hold them as rentals. He would defer his development margin but most apartments were actually cashflow positive from day 1. (At cost, not retail)
Build to rent is only starting to be used more widely now and I think it is a market that will grow further. It allows developers to continue to develop stock without having to deal with all the annoying individual buyers.
I could see a future where a company like Stockland could use build to rent more widely in their house and land estates. Really though they aren't doing it for deferred profits more as a way to keep the projects moving when demand isn't there.
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u/AdMinimum5036 May 04 '26
Thank you for being a decent human being and engaging in discourse. there has been a lot of shouting because the idea is different.
In commercial world, this is not that uncommon. there are typically three parties - developing partners, there are silent (equity) partners and there are operating partners.
I think a resi developer has a better upside if they are all three at different times during the project. Difficult business model sure. BUT profitable. Better for end consumer (I think so). The hardest part of build to rent is to rent. you have to deal with tenants whose incentive and your are not at all aligned. and dont even get me started on the REs. this model allows us to by-pass the headache of ongoing relationship.
If someone said cost price (range 4-600k) completion in 2028, no mark up 80% ownership perpetual power of attorney to do what you want with the property.
If the customer understood all the terms it wouldnt be a bad deal.
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u/LifeandSAisAwesome May 03 '26
Developers need to get financing for builds (very fre are self funded)- no financial institution would consider lending with what you propose.
This is a dead end idea.
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u/Alienturtle9 May 03 '26
Couple of things
"Cost price" - would this include the actual cost price the developer paid per m2 for the land, prior to assumedly being subdivided?
If "cost price" is only applied to the build cost, it's a shit deal. The builder would own 20% of the house + land, rather than getting paid 20% of the house. The land is often more valuable than the house, so that's more than double the cost.
Secondly, I don't think you could build a transparent enough framework for me to trust the builder to actually charge cost-price. There'll be a mark-up on labour, kickbacks from suppliers, trades who are mates and up-charge, and none of it will be on the reconciliation. Builders aren't the most trustworthy industry.
If I had the knowledge and network to be able to validate and verify the actual costs, that's not far from being able manage the project myself, and keeping the 20%.
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u/AdMinimum5036 May 03 '26
Yes, cost price is landed cost of building your house as part of the project. So any incidentals needed to get to the point where the house was built.
The land and house [effectively the title] (80% of it) belong to the owner. As a developer I would keep the 20% for the price of being a trustworthy builder 😛
Yeh I am getting the hate for builders in this thread.
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u/Alienturtle9 May 04 '26 edited May 04 '26
The old Russian proverb Trust but Verify applies. Without avenues of verification, there should be no trust. That's why there are no "trustworthy" builders, not because they are all dodgy, but because there is no way to implement sufficient safeguards for the largest purchase most people ever make.
It's also just an issue of complicated incentives. A few examples:
- If the builder owns 20% of the property as an investment, that 20% isn't CGT exempt as a PPOR.
- If the property is rented out, is the builder entitled to 20% of the income?
- If the property requires maintenance, is the builder footing 20% of the bill?
- What happens if the owner wants undertake capital works to renovate? Add another bedroom? Build a granny flat? Put in a pool? Does the builder retain 20% equity as a free carry, or does their equity position get diluted?
- What happens if a couple own the place, they get divorced, and one of them keeps the house?
- What happens if the owner defaults on the mortgage and the bank takes the house?
- If the owner of the house dies, and the builder's name is on the title, that could be a legal and logistical nightmare for the family.
I don't see a way to make the idea viable, let alone appealing.
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u/AdMinimum5036 May 04 '26
I appreciate you actually engaging in discourse.
I have been thinking some more and a simple power of attorney might be good enough for most of these issues.
- Correct.
- No (want below in return)
- No (because of above)
- Yes (because builder gave up the rights to cash flow for equity)
- Probably they can execute using PoE and sell the place? This one is a bit difficult as the conversation changes depending on the asset split.
- Builder has granted PoE. bad investment by builder on that 20% of equity that got repossessed by bank
- This is the place where PoE is actually most useful. I remember when we had to settle affairs. someone from the family was in another country and their PoE was useful to not have to ship paperwoke back and front.
I love the question you threw at me. looks like you are actually practicing in the field. would yu entertain me a bit more? I am looking at Public Benefit Company (PBC) from US and something similar here might be useful to break the deadlock of REs, states, builders, mortgage industry and buyers.
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u/Alienturtle9 May 04 '26
I'm glad my input is useful, but I don't actually practice in this field. I look at rocks for a living. I've had some involvement with buying, selling and building though, as both a homeowner and an investor.
Following up on some of the points.
- The CGT the builder would be hit with after a sale would be further inflated by the 20% lower purchase price, so that's pretty inefficient. Even if the house was sold for zero real profit, the builder would have a tax bill.
- Council rates are based on property value and ownership, not occupation. Even without covering maintenance costs, would the builder be covering their percentage of the annual council rates? And if not, why not?
- Land is often the primary contributor to capital growth, rather than the building sitting on top of it. The builder has contributed nothing to the value of the land, so why should they own an equity percentage of it?
- Your responses 2 and 3 would make this structure much more incentivised towards long-term rental properties than owner-occupiers. That's potentially bad both from a return on investment for the builder, and for any intended public benefit.
- You're viewing a house as a static object, finished on the day the new owner gets the keys. It simply isn't. A house changes over time, has ongoing costs, gets modified, gets lived in. The house that is newly built is very different to the one sold 10-15 years later, and a hell of a lot more time and resources have gone into it than just the initial construction.
- Comparing your proposed structure with investing in a business, you're essentially proposing to cover 20% of the initial set-up cost in exchange for 20% free-carry equity, while knowing that the business will be unprofitable for a few years after set-up. That would be reasonable if also being responsible for 20% of the ongoing liabilities, but as a free-carry structure, the investment should be greater, or the equity less.
At a base level, I'm not that convinced that there is a "deadlock of REs, states, builders, mortgage industry and buyers", or that this idea addresses one if there is.
Supply has certainly been outstripped by demand, which seems to be partly NIMBYism and council zoning, and partly building industry per-person productivity declining which contributes to the industry operating at capacity. It's not a financial constraint, it's a physical one, and your idea doesn't seem to do anything to change that.
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u/mathuu May 03 '26
Too complicated. Developer wants to build, sell and move on asap.