Hi everyone
It’sJeffrey, Catherine’s partner. I’m new to the cohousing project but keen to beinvolved and looking forward to living in Toiora.
I’d like toput forward a few thoughts about the development fund and some figures producedby Rainer.
There are currentlytwo potential revenue sources for the development fund: monthly fees, similarto the BodyCorp, and the contribution of 5% of capital gains (5%cg) upon saleof units.
A fewmeetings ago there was discussion about ‘do we need to change documents formortgages? And if we were to take out the 5%cg clause upon resale, how could werecoup that money for the development fund through annual fees?’
Accordingto Rainer’s table and email, if the capital gain of every unit over the next yearwas 10% then 5% of capital gains (5%cg) is about $65,000. But the only way that we would get $65,000 intothe development fund via the 5%cg next year is if we sell all the units with a10% capital gain. No offence intended Rainer, but I suggest that theunderlying premise of your figures is wrong. This may seem like splitting hairsbut we need to be careful about the big numbers we wave around and where theycome from and what are the underlying assumptions. There seems to be an idea in the group thatwe will have ‘too much money’.
I suggestthat a more likely scenario is that once everyone is settled into cohousing theturnover 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 oneunit is $100,000 after 5 years then, when sold, $5,000 goes to the development fund.
In theshort term, taking the 5%cg out of the cohousing documents may only have a smalleffect on the liquidity of the development fund (depending on how much we levyannually). In the long term, if weassume that property prices keep rising (quickly or slowly) 5%cg might become substantial.
(The ideathat prices keep going up forever is also questionable. Property bubbles expandand pop for various reasons. World issues of climate change/pestilence/war canmean the collapse of financial systems. These things have happened throughouthistory. The recent large increase in property values in Dunedin of the last 2years is not consistent with the previous 28 years and we cannot assume it willcontinue.)
Earthsongsuggested 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 alot of money, due to some extent on the back of the work by everyone in theCommons, but none of that money ever came back to the Commons, as they wouldnever be sold.
The pointof the Covenant is to keep Toiora as cohousing in the long term to fulfil theconditions of our Resource Consent. It is simple and enduring, but we may need tolook at other ways in the short term to fulfil those conditions. The point ofthe 5%cg contribution is to fund development in the long term. I suggest that away is found to keep this contribution as a mandatory part of the cohousingset-up. Not so much for the short term but for the long term. As Iunderstand it, the actual amount of yearly fees to go to the development fundhas 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 annualcontributions. With mortgages, living expenses and BodyCorp fees to pay theremay not be much left to accumulate in the development fund. I suggest we are veryunlikely to have ‘too much money’. BestJeffrey
Hi Jeffrey,
Thanks for your input. Great to hear your thoughts.
Here is what I think: In the scenario that you suggest, if one house is sold every few years with a capital gain contribution of 5%, we will have the following situation: Let's take an example of ONE house sold every 2 years, with a capital gain of 100K. The contribution towards the development fund would be 5K after 2 years.
If that was the case, this would equate to 2.5K per year or less than 2$ per week per unit if we were going to fund ourselves. I personally think that it would be simpler to add a 2$/week to the fund through the body corp to achieve the same result.
I think we are talking about two extremes here. We might not have and/or might not want to have 65K per year. But is 5K every few years too little (?)
*I think we need to have a discussion on how much we actually want to raise. And start from there. *
The good thing is that once we move in we can take the year 2021 to discuss and agree on how much we want to raise and ways of doing this. As mentioned at the meeting, this might change from year to year depending on our proposals and needs. We will have the opportunity to review and agree on a new figure once a year through our body corp.
Kind Regards,
Maria Callau 0211847490
SUR Architecture Limited www.sur-architecture.com
Kind Regards,
*Maria Callau* 0211847490
*SUR *Architecture Limited www.sur-architecture.com
On Tue, Dec 22, 2020 at 12:47 PM Jeffrey Robinson via Ucol-shareholders < ucol-shareholders@list.king.net.nz> 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
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
It gets worse from the Bank's POV, by the way Because their accounting entry would look like this *Debit Provisional Liability account 5% of Capital Gain on units** ** Credit Other Expenses (provisional) account 5% of Capital Gain of units*
So they end up with an uncertain liability/expense to get past their financial auditors.
Min
-------- Forwarded Message -------- Subject: Re: [Ucol-shareholders] development fund Date: Tue, 22 Dec 2020 20:13:31 +1300 From: Y Lee yblees@orcon.net.nz Reply-To: yblees@orcon.net.nz To: ucol-shareholders@list.king.net.nz
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
Oops, the other way round for the banks * Credit Provisional Liability account 5% of Capital Gain on units** ** Debit Other Expenses (provisional) account 5% of Capital Gain of units*
Min
-------- Forwarded Message -------- Subject: Fwd: [Ucol-shareholders] development fund Date: Tue, 22 Dec 2020 20:26:14 +1300 From: Y Lee yblees@orcon.net.nz Reply-To: yblees@orcon.net.nz To: ucol-shareholders ucol-shareholders@list.king.net.nz
It gets worse from the Bank's POV, by the way Because their accounting entry would look like this *Debit Provisional Liability account 5% of Capital Gain on units** ** Credit Other Expenses (provisional) account 5% of Capital Gain of units*
So they end up with an uncertain liability/expense to get past their financial auditors.
Min
-------- Forwarded Message -------- Subject: Re: [Ucol-shareholders] development fund Date: Tue, 22 Dec 2020 20:13:31 +1300 From: Y Lee yblees@orcon.net.nz Reply-To: yblees@orcon.net.nz To: ucol-shareholders@list.king.net.nz
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
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 mailto:Ucol-shareholders@list.king.net.nz https://list.king.net.nz/listinfo/ucol-shareholders 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
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 mailto: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
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