Originally Posted by
Hakuho
What should happen to the land value of a 99LH private property over its lifespan?
To illustrate a simple model, let's consider a property unit that cost the buyer $1.0 mil, for 1000 sf therefore $1000 psf GFA.
Buyer bought it with the LTV of 80%, didn't matter if he bought to stay or for investment.
For mass market, the typical ratio of the unit’s land share value and physical cost is (60:40). Therefore, the buyer paid $600 k for the unit’s land share value (60% of $1.0 mil).
For example in the case of Stirling Road, if the selling price is $1850 psf GFA then the ratio becomes (57:43, $1050:$800).
The depreciation rate to apply for the land share value should be 1% per year.
At the end of 30 years the land share value will deprecate by 30% so it becomes $420 k.
$180 k ($600 k minus $420 k) is deprecated over 30 years, therefore 90% of the initial capital deployed is wiped out.
Now, what will happen if the surrounding land has an enbloc or GLS at the 30th year?
Let's say after calculating what the developer has paid for the land plus DP etc, we arrive at the price of $1500 psf ppr.
For the unit, the land share value should be re-rated to $630 k ($600 k x 1.5 x 70%). This is the reason why LH property has been retaining its nominal value so far.
Now, what if the re-rating is done at the 60th year?
The land share value should then be $360 k ($600 k x 1.5 x 40%) so the value is lower than the initial $600 k.