Hi Jeffrey and all

A step back, after you have taken the wrong turn, is a step in the right direction.

The table I send out on the 12 Dec is correct. It is based on a annual increase of 10% on the house value (the past year it was more) and a 5% contribution of this capital gain to the common development fund. It comes altogether to $65,000 per year if all houses would sell. You are right Jeffrey, the first year we probably don’t get much at all as we all want to live there and not sell. However, this $65,000 is correct as an annual average over a long period (say 30 years), though some years there is nothing and other years as several houses may sell, quite a lot. The longer we wait, the more we can expect and there will be less to develop.

This is also a very basic calculation as it is a simple calculation that excludes the compounding effect of the capital gain of our houses. It is also based on a 10% capital gain of the houses. If the capital gain is only 5%, the capital gains levy would ‘only’ be half or $37,500 p.a.: if its 20%, the capital gains levy would be twice or $130,000 per annum. 

Regardless, the value of the common would be increased by a lot over a long period of time. And as I pointed out at the meeting (you can read it in the draft notes, but not in the final notes), we would end up with more money than we can sensibly spend and create an over the top common ownership. Our property might end up to be so attractive with all its common, that only very rich people can afford it.

We also mustn’t confuse the Common Development Fund with the Maintenance Fund, which takes care of all roofs, the grounds, and common house as it is at the moment.

Ironically we can not develop our own houses very much at all. We can not add a bedroom, or balcony, or roof terrace. Even a new kitchen after 15 years is really only maintenance.

When i agreed to pay $535,000 for D6, then really only 90% is for my dwelling, 10% is for the common (make up your own percentage split if you don’t like my split). I could afford the 10% as my current house also has a roof and a garden, which the new owner was happy to pay for (roofs and garden are owned in common at Toiora and are maintained from the maintenance fund). 

If we don’t develop the common at all over the next 20 years (but only maintain the common which includes roofs and grounds and common house) and I sell my dwelling, 90% of the sales price will be for the dwelling and 10% will be for the common.

If we keep the 5% capital gains levy and I sell my property after 20 years, my dwelling might be only 80% and the common 20% of the total sales price, as the common was improved by the 5% capital gains levy by all those co-housers who sold before me. I will make quite a capital gain on my sale, which seems not fair, as I have not yet contributed to the common development fund.

If I contribute to the common development fund like every other co-houser through an annual levy, we would not have the above problem and we can develop our common right away!

A step back, after you have taken the wrong turn, is a step in the right direction.

I had to get this off my chest before I go on holiday.
Have a good break from all of this. 

regards Rainer


Please call me if you need an urgent reply.
Rainer Beneke
+64 21 144 7700

rainer.ucol@gmail.com






On 23/12/2020, at 11:17 AM, Catherine Spencer via Ucol-shareholders <ucol-shareholders@list.king.net.nz> wrote:

Hi Min,

I am no accountant, but all our documents to date have been passed by our accountant and Polson Higgs, our tax advisors. Neither has brought up an issue regarding the 5% CG in terms of difficulty in accounting.  

We have at length agreed on the principle of the 5% CG, and yes, we might a need to change the wording or the place where it is housed in the documents, although at this stage Stephen Edge does not think so. Just because something is unusual or difficult it is not a good reason not to do it. If that were the case then we would not be here at this stage with New Zealand’s second cohousing neighbourhood.

My understanding from the meeting was that Susan suggested to re-order the content of the BC rules, rather than take out all references to Cohousing and the 5% CG. Maybe you are preparing 2 versions.

Best wishes and thank you for your work,
Catherine

On 22/12/2020, at 8:13 PM, Y Lee <yblees@orcon.net.nz> wrote:

Sorry Jeffrey
I'm against discussing the 5% contribution right now because it just complicates things for me when altering the Body Corp.
Plus at the moment, it's the banks we have to convince, not the shareholders.

Also
From an accounting point of view, it's not as straightforwards as getting cash whenever a unit is sold

The accounting entry would look like this - accumulated and reported annually:
Debit Provisional Asset account                    5% of Capital Gain on units
         Credit Other income (provisional) account                   5% of Capital Gain of units

So every year, the accountant has to find a valid number to plug into this entry
They can't just pull a number out of a hat.  They have to be able to prove in a financial audit that it's a reasonable figure.
If you need to do a multi year forecast, it becomes even more guesstimate. 
Like what is the average capital gain for the next 20 years (term of mortgage)??
If you think about it this way, you can see why the banks don't like dealing with it.

Regards
Min


On 22/12/2020 12:46 pm, Jeffrey Robinson via Ucol-shareholders wrote:

Hi everyone

It’s Jeffrey, Catherine’s partner. I’m new to the cohousing project but keen to be involved and looking forward to living in Toiora.

I’d like to put forward a few thoughts about the development fund and some figures produced by Rainer.

There are currently two potential revenue sources for the development fund: monthly fees, similar to the BodyCorp, and the contribution of 5% of capital gains (5%cg) upon sale of units.

A few meetings ago there was discussion about ‘do we need to change documents for mortgages? And if we were to take out the 5%cg clause upon resale, how could we recoup that money for the development fund through annual fees?’

According to Rainer’s table and email, if the capital gain of every unit over the next year was 10% then 5% of capital gains (5%cg) is about $65,000.  But the only way that we would get $65,000 into the development fund via the 5%cg next year is if we sell all the units with a 10% capital gain. No offence intended Rainer, but I suggest that the underlying premise of your figures is wrong. This may seem like splitting hairs but we need to be careful about the big numbers we wave around and where they come from and what are the underlying assumptions.  There seems to be an idea in the group that we will have ‘too much money’.

I suggest that a more likely scenario is that once everyone is settled into cohousing the turnover of units will be relatively low (it’s going to a great place to live).  Perhaps only one unit sale every few years.  If, for example, the capital gains on one unit is $100,000 after 5 years then, when sold, $5,000 goes to the development fund.

In the short term, taking the 5%cg out of the cohousing documents may only have a small effect on the liquidity of the development fund (depending on how much we levy annually).  In the long term, if we assume that property prices keep rising (quickly or slowly) 5%cg might become substantial.

(The idea that prices keep going up forever is also questionable. Property bubbles expand and pop for various reasons. World issues of climate change/pestilence/war can mean the collapse of financial systems. These things have happened throughout history. The recent large increase in property values in Dunedin of the last 2 years is not consistent with the previous 28 years and we cannot assume it will continue.)

Earthsong suggested a percentage of capital gains be returned to the Commons because, over the long term, the large rises in property values made those who sold a lot of money, due to some extent on the back of the work by everyone in the Commons, but none of that money ever came back to the Commons, as they would never be sold.

The point of the Covenant is to keep Toiora as cohousing in the long term to fulfil the conditions of our Resource Consent. It is simple and enduring, but we may need to look at other ways in the short term to fulfil those conditions. The point of the 5%cg contribution is to fund development in the long term. I suggest that a way is found to keep this contribution as a mandatory part of the cohousing set-up. Not so much for the short term but for the long term.

As I understand it, the actual amount of yearly fees to go to the development fund has not been fully discussed, unlike the BodyCorp fees which have been decided. Over the next few years the development fund will mostly come from our own annual contributions. With mortgages, living expenses and BodyCorp fees to pay there may not be much left to accumulate in the development fund. I suggest we are very unlikely to have ‘too much money’.

Best
Jeffrey


_______________________________________________
Ucol-shareholders mailing list
Ucol-shareholders@list.king.net.nz
https://list.king.net.nz/listinfo/ucol-shareholders

_______________________________________________
Ucol-shareholders mailing list
Ucol-shareholders@list.king.net.nz
https://list.king.net.nz/listinfo/ucol-shareholders

_______________________________________________
Ucol-shareholders mailing list
Ucol-shareholders@list.king.net.nz
https://list.king.net.nz/listinfo/ucol-shareholders