House Prices "Heavily Undervalued" says Times article

CLAPTON

shortchanged wrote: »

Perhaps because the big companies are buying up all the large pieces of development land and are just sitting on them. Just a thought.

you mean that large companies are over paying for the land?
how can they make a profit if they pay far too much for the land?

but if they are still making a big profit then the small guys could pay a bit more and still make lots of money

Carl31

chucky wrote: »

Really?? Is house buying the only option. People can rent, take advantage of the opportunity of social housing. If property was over priced the majority of people would be renting,.

People can rent, but the general census in this country is you have to buy, so thats what people want to do. The cost each month of renting is pretty much the same, if not more than buying anyway at the moment

Social housing isnt something people can 'just take advantage of', social housing is to fufill a need for those that require it, thats no the everyday man on the street

chewmylegoff

wotsthat wrote: »

I don't know how easy this would be to get away with in the accounts as they have to convince the auditors that the valuations are reasonable. Valuing a small number of plots at £10 would be difficult when they've been buying at £7.50 since the start of the recession.

They don't have to convince the auditors that the valuation is reasonable. They can carry land in their accounts at cost until there is evidence which suggests that its valuation has to be impaired which is an altogether different test (the evidence usually being that you are selling land + house built on it for less than the cost of the land and the cost of building the house - therefore if you just don't build on the land you don't have to write it down).

This does of course depend on the accounting policies you use - if you choose to revalue all your land to current market value every 3 or 5 years then it is less likely to be an issue (although it would still accelerate any impairment charge).

Loughton_Monkey

chewmylegoff wrote: »

They don't have to convince the auditors that the valuation is reasonable. They can carry land in their accounts at cost until there is evidence which suggests that its valuation has to be impaired which is an altogether different test (the evidence usually being that you are selling land + house built on it for less than the cost of the land and the cost of building the house - therefore if you just don't build on the land you don't have to write it down).

This does of course depend on the accounting policies you use - if you choose to revalue all your land to current market value every 3 or 5 years then it is less likely to be an issue (although it would still accelerate any impairment charge).

So could Arthur Daley have 200,000 Charles & Diana mugs in his lock-up, bought for £10 each, and carry them in his books at £2 million, despite the fact that he wouldn't be able to sell them at any more than 50p a dozen?

CLAPTON

Loughton_Monkey wrote: »

So could Arthur Daley have 200,000 Charles & Diana mugs in his lock-up, bought for £10 each, and carry them in his books at £2 million, despite the fact that he wouldn't be able to sell them at any more than 50p a dozen?

accountancy is fraudulent

just look at the cash flow

no cash and you are bankrupt
cash and you are not

wotsthat

chewmylegoff wrote: »

They don't have to convince the auditors that the valuation is reasonable. They can carry land in their accounts at cost until there is evidence which suggests that its valuation has to be impaired which is an altogether different test (the evidence usually being that you are selling land + house built on it for less than the cost of the land and the cost of building the house - therefore if you just don't build on the land you don't have to write it down).

This does of course depend on the accounting policies you use - if you choose to revalue all your land to current market value every 3 or 5 years then it is less likely to be an issue (although it would still accelerate any impairment charge).

I'm used to valuing stock in a warehouse which is easier than valuing land but assume similar principles apply. Our auditors are interrogating both the stock levels and the valuation given to it which is generally the buying price. If there's some distressed stock which has to be written down there will be an attempt to choose which financial year to do this i.e. the one just finishing or the one just ending.

I can't see how a company could maintain an excessive valuation (other than by fraud) for 6 years when the price is being discovered whenever they buy or sell other parcels of land. Over a year end maybe, two possibly but 6 years seems unlikely.

It's been a terrible few years for listed builders - they should have taken the opportunity to get all the bad news out.

CLAPTON

this is now surely academic

houses prices are now at an all time high and so land prices must broadly be the same.


we need to build more houses as our population is increasing 400,000 per year minimum

chewmylegoff

wotsthat wrote: »

I'm used to valuing stock in a warehouse which is easier than valuing land but assume similar principles apply. Our auditors are interrogating both the stock levels and the valuation given to it which is generally the buying price. If there's some distressed stock which has to be written down there will be an attempt to choose which financial year to do this i.e. the one just finishing or the one just ending.

I can't see how a company could maintain an excessive valuation (other than by fraud) for 6 years when the price is being discovered whenever they buy or sell other parcels of land. Over a year end maybe, two possibly but 6 years seems unlikely.

It's been a terrible few years for listed builders - they should have taken the opportunity to get all the bad news out.

Because you are allowed to hold land at cost, basically. It's not fraud, it's how the accounting standard is worded.

chewmylegoff

Loughton_Monkey wrote: »

So could Arthur Daley have 200,000 Charles & Diana mugs in his lock-up, bought for £10 each, and carry them in his books at £2 million, despite the fact that he wouldn't be able to sell them at any more than 50p a dozen?

No, because mugs are not land.

Loughton_Monkey

chewmylegoff wrote: »

Because you are allowed to hold land at cost, basically. It's not fraud, it's how the accounting standard is worded.

chewmylegoff wrote: »

No, because mugs are not land.

Then probably accountants are mugs.

How would it work, therefore, if the following happens:

1. Loughton Monkey Property Ltd. buys a plot of building land, cheap, at £1 million when the prices are low.

2. A few years later, the market picks up. Not only is the land worth £2 million (market values), I reckon I can spend another £1 million building houses and sell the whole shooting match for £3 million. So I make £1 million profit.

3. So seeing this coming, before I build, I sell the land to Loughton Monkey Offshore Tax Haven Caymen Islands Ltd. for £1 million, and buy it back for £2 million and then build the houses.

4. Whoops! I've bought land, built houses, and sold them, and washed my face. Zero profit. Zero tax.

5. Loughton Monkey Offshore Tax Haven Caymen Islands Ltd. Has made the £1 million profit tax free.


Large gin & tonics all round......