More needs to be explained about this proposal, but on the surface it seems flawed and the Opposition are probably right.
Let's say someone buys one a house, $200k for land and $200k for building, with 20% of the house as deposit ($40k) plus fees. On P&I with a 25 year term, after 10 years they pay off about $30k @ 8%. They now owe $130k on the house but the land value has doubled. The government has $200k extra equity (on land they lease). If the 'home owner' wants to buy out their land the total loan would now be $530k (instead of $340-ish if they had bought it all).
On top of that, there are issues like working out how much of it you own if you sell and your house has depreciated more than you've paid off of the initial loan. For example, after the first five years you decide to sell but have only paid off $13k, but your 'house component' may have depreciated $25k (using the 40 year depreciation rate as an indicator and ignoring the higher depreciation rates of fittings). You sell and you could be $12k worse than when you started (without adding other costs)... but that is still less than lost rent money.
You could hope that the cost of building goes up, and therefore the value of your house might also go up, or not down as much, but that doesn't help if you need to buy elsewhere.
... and ...
... when you sell will REAs only want a commission based on percentage of your portion? I don't think so. ... bigger net loss.
... you've got to find a bank that thinks this is a safe idea to loan you money where you could be loosing capital faster than you pay it down. I guess they give loans for cars.
Sounds like a well intended idea that could become a nasty financial trap.
Needs more info, numbers look bad.  Dave
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This is a general comment, opinion or view on experience and does not constitute advice. Spelling and grammatical errors included to add character and originality!
Last edited by D&K; 30-06-2008 at 08:31 PM.
Reason: typo
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