Shared ValueAffordable Homes

What is the shared value initiative?Imagine being able to buy your own home, even in a higher priced area, close to essential services and transport.

At Housing SA, we’re working to make that possible.

Through our Affordable Homes Program and the shared value initiative, we’re giving more South Australians the chance to invest in their own future.

Here’s how it works: If you earn a low to moderate income, our shared value initiative means you can purchase a property well below the normal market price. You’ll get a discount from Housing SA. That step alone increases your purchasing power without the need to increase mortgage repayments.

And when you come to sell, you’ll share the appreciated proceeds with us as we have shared the initial purchase with you. And our repaid discount will then be passed on to another person who would like to enter the scheme. That’s what we call shared value.

So who is eligible?This initiative is limited to low-to-moderate income earners in South Australia. To see if you’re eligible visit: www.affordablehomes.sa.gov.au

Where can you buy a home?There is a range of Affordable Homes available across South Australia. They include those made available through the State Government’s target of 15% affordable housing within new residential developments.

Shared Value Affordable Homes are marked with this distinctive orange key and a simple descriptor.

H MESAFFORDABLE

O Shared Value Affordable Home

You’ll find Shared Value Affordable Homes at: www.affordablehomes.sa.gov.au

And if you’re an eligible buyer you’ll have exclusive access to these homes at a fixed price. All properties are available on a first-come, first-served basis.

To find out more about the steps involved in purchasing a Shared Value Affordable Home visit www.affordablehomes.sa.gov.au or contact Housing SA on 131 299.

How does the initiative work?Shared Value Affordable Homes are offered to eligible buyers at a price less than the market value of the home.

You’ll enter into a ‘shared appreciation arrangement’ with Housing SA, at no interest or repayment cost.

When the home is resold, the amount discounted from the initial sales price, plus a share in any appreciation in value, must be repaid under that arrangement.

To put it simply, we’ll share in the increased value of your home as our interest for helping with the initial cost.

Of course along the way, you’ll also enjoy all the benefits of home ownership, without any encumbrances - such as building equity through refinancing or making home improvements.

Eligible buyers may obtain finance from a lender of their choice. One option we’d suggest is HomeStart Finance. Simply because they’re able to provide a range of loans specifically tailored to low-income households1.

And you’ll be free to sell the property at any time you choose, in accordance with Affordable Homes Program statutory declaration requirements.

If your financial circumstances change, you are freely able to pay out the whole of the initial discount.

A real life Shared Value Affordable Home exampleThe following is an example of the Shared Value Affordable Home initiative and explains the ‘shared appreciation agreement’.

Mary is an eligible buyer (she meets all Affordable Home Program criteria) and in 2010 purchases a Shared Value Affordable Home.

The home has a market value of $320,000 and, as part of the initiative, Housing SA has provided a discount of $65,000.

This means Mary only needs to arrange a home loan and deposit for $255,000.

In 2014 Mary decides to buy a new, larger house for her growing family and sells her current Shared Value Affordable Home. Mary’s home has increased in value by $40,000 and is now worth $360,000.

Of the $360,000 sale, $74,750 is to be paid to Housing SA, including:

1. Repayable discount = $65,000

2. Shared appreciation entitlement = $9,750 Housing SA’s shared appreciation entitlement is calculated on the percentage value of the initial discount x 120%. = ($65,000 repayable discount / $320,000 market value) x 120% = 20.31% x 120% = 24.38% Housing SA is entitled to 24.38% of the $40,000 increase in value: $9,750.

Mary will receive the remaining $285,250, part of which will be required to pay out her existing home loan.

The $74,750 return to Housing SA on the repayable discount can then be used to discount future Affordable Homes to ensure another household has the same opportunity as Mary.

This example illustrates a change in house value and an eligible buyer’s share in any possible appreciation. Home-owners must be careful to consider additional resale costs, including agent fees and stamp duty.

1 Depending on the home lender you choose, a deposit may be required. However, you may be able to qualify for a no-deposit home loan through HomeStart Finance.

FREQUENTLY ASKED QUESTIONS

Are there mortgage restrictions?

The Shared Value Affordable Home initiative will not limit your ability to secure finance. The home loan secured will simply be financed for the discounted sale price from HomeStart Finance, or a lender of your choice.

As an eligible buyer you’ll have complete flexibility in securing finance, and may select any home lender.

As the share of equity grows in a property you’ve purchased, additional funds may be accessible; however, this will be dependent upon the individual home loan provider’s lending criteria.

You must provide proof of ‘in principle’ finance to the real estate agent before you can be considered ‘first in line’ to purchase a Shared Value Affordable Home.

For more details on the Affordable Homes buying process visit www.affordablehomes.sa.gov.au

What are the upfront and ongoing fees and costs?

Think of a Shared Value Affordable Home as the same as any other home. The same upfront fees and charges will apply. These fees may include mortgage duty, conveyancing and stamp duty.

It is important to note that although Shared Value Affordable Homes are sold to eligible buyers at a discount, stamp duty is calculated based on the property’s assessed market value.

In the previous example, Mary would pay stamp duty based on the property’s market value of $320,000, not on the discounted sale price of $255,000.

Eligible buyers must consider whether sufficient funds are accessible to meet these upfront costs before deciding to purchase a Shared Value Affordable Home.

Eligible buyers are required to pay for all ongoing rates and taxes associated with home ownership. Some of these continuing expenses are based on the market value of the home and not the discounted price of the property.

There are no ongoing costs associated with the repayable discount, which is administered by HomeStart Finance on behalf of Housing SA.

Who pays for repairs and ongoing maintenance?

As the home-owner, it is your responsibility to repair and maintain your Shared Value Affordable Home as you would any other home. Newly constructed homes often come with a guarantee for a limited time period to cover certain defects after it was built.

Can improvements be made to the Shared Value Affordable Home?

Like any other home-owner you will be free to make additions or alterations to a Shared Value Affordable Home if your housing needs change over time.

If those improvements are over $10,000, you’ll also have the opportunity to have the lesser of ‘the improved value’ or ‘cost of the improvement’ depreciated and deducted from the ‘shared appreciation calculation’. That means when you sell your home, you’ll also get the fair value of those improvements.

Please note that HomeStart Finance, as Housing SA’s agent, needs to be notified before commencing any improvements so a valuation can be undertaken before and after. In fairness to you, we need to ascertain the increase in value of the improvements and how it will impact the share of appreciation gain entitlements.

Can I make a lump sum payment or pay out the repayable discount?

At any point in time, you may pay out the whole of the repayable discount. However, a valuation is required to determine how much the value of the property has increased (or decreased) from the time you purchase the property.

Can I draw down on any property appreciation?

Subject to your individual lender’s lending criteria, you’ll have the opportunity to draw down on your share of any appreciated property value. This is typically achieved by limiting refinancing or increasing your existing home loan to no more than your share in the property at any given point in time. (If you choose to draw down on property appreciation contact your lender because a valuation will be required to determine the market value of the property and your share).

How does the Shared Value Affordable Home repayable discount and shared appreciation resale formula work?

In addition to the initial repayable discount, under the shared appreciation agreement, Housing SA is entitled to a share in the appreciation of the property. A factor of 1.2 (or 120%) is applied to the Housing SA portion.

For example:

Property value at sale $320,000

Primary loan from lender of choice $255,000

Initial repayable discount $65,000

Housing SA’s share in any future appreciation is 20.31% x 1.2 or 24.38%. This means Housing SA is entitled to 24.38% of any increase in the home’s value between the time of purchase and the time of resale.

So, if in ten years’ time, the property’s market value has increased from $320,000 to $360,000, then Housing SA would be entitled to 24.38% of $40,000 or $9,750 of the gains, plus the original $65,000 repayable discount.

As a result, Housing SA is entitled to $74,750 in the proceeds of sale at that time.

What if the market value of the property declines?

Should a Shared Value Affordable Home resale value fall below its original assessed market value, Housing SA will proportionately share the loss. In the example used above:

When Mary purchased her Shared Value Affordable Home for $255,000, the market value was $320,000, with a repayable discount of 20% ($65,000)

If Mary sold her property in 5 years, and the property market had fallen by $20,000 to $300,000, Housing SA would share the loss at 20% of the fall in value, or $4,000. This would mean Mary’s repayable discount is $61,000.

Are there any resale restrictions?

You’ll need to live in your Shared Value Affordable Home for a continuous period of 6 months within 12 months of settlement. You’ll be required to sign a statutory declaration that declares that intent at purchase.

After this designated period eligible buyers are free to resell the property on the open market, though a valuation must be applied by Homestart Finance to calculate Housing SA’s repayable discount and share in any appreciation.

Can I still obtain a First Home Buyer Grant?

Yes, if you are eligible, you can access both Commonwealth and State Government first home buyer assistance grants. With a Shared Value Affordable Home, the eligible buyer owns 100 percent of the property’s title.

Who provides the repayable discount on market value?

The repayable discount is provided by reducing the Shared Value Affordable Homes sale price below the assessed market value.

This discount is typically supplied through either:

• direct government funding or charitable contributions; or

• developer discount as part of meeting the State Government’s requirement for 15% affordable housing in new significant developments.

What happens if I stop making repayments?

The consequences of this will be up to your financial lender, however, normal lending practices require you to keep making repayments until the loan is fully repaid.

But remember, there are no repayments or interest charges for the repayable discount provided by Housing SA until the property is resold.

Can I lease my Shared Value Affordable Home?

When Housing SA formally assesses the eligibility to purchase a Shared Value Affordable Home, purchasers are required to complete a statutory declaration. This states that the eligible buyer owns no other property and intends to reside in the home for a continuous period of 6 months within 12 months of settlement.

There would be significant taxation implications, particularly Capital Gains Tax, if an eligible buyer were to use the property for investment purposes.

If circumstances require the property to be leased, such as temporary work relocation or other personal matters, the eligible buyer will need to notify Housing SA.

What happens if eligibility criteria changes, do I still have to provide the discount refund?

Eligibility to purchase a Shared Value Affordable Home is determined at the point of purchase. If your personal circumstances change over time, you will still be required to meet Housing SA’s entitlements when the property is sold.

Can I own more than one property?

No – properties for sale within the Affordable Homes Program are intended to be purchased by owner-occupiers. A major eligibility requirement within the program is that you are not entitled to purchase an Affordable Home if you already own residential property.

If you have already purchased a Shared Value Affordable Home and are considering purchasing an investment property your home lender may require you to pay out Housing SA’s share in the property.

December 2012

How do I get more information?To find out more about the Shared Value Affordable Home initiative eligibility and the Affordable Homes Program in general, visit www.affordablehomes.sa.gov.au

You can contact Housing SA directly on 131 299.

This brochure can be supplied in alternative formats when required. Contact Housing SA on 131 299.