Tuesday, September 17, 2013

Appraisal of a residential subdivision in Trinidad

 
The story was as follows:  A bank was about to foreclose on this struggling hillside subdivision with upscale hopes, although the developer had received “Town and Country Planning permission” (entitlements) for a change to multifamily development, which might appeal to a broader market than these expensive residential lots (each > $100,000 USD, pricy even by U.S. standards). 
 
The developer had a recent valuation from an MRICS chartered surveyor for $7,225,000 for a slice of land having a total of 11 lots plus roadways, including two lots required to serve as open space and a preschool/community center.  The appraised value worked out to about $14 USD per square foot for total land area before subdivision. Numerous residential lots are listed for sale in the neighborhood at prices of about $14 to $15 USD per square foot, so the chartered surveyor did not discount for the time and expense to sell out all of the lots, as required in U.S. appraisals -- these lots won’t fly off the shelf on Day One of marketing.  In fact, there have been no lot sales this year.
 
As with many other Caribbean and Latin American nations, developers here have crowded the residential submarket catering to the affluent class, which during better times has higher profit margins than land developed for affordable housing.  The result has been similar in each nation – a dearth of affordable housing for the masses but an oversupply of upscale residential projects – as each nation competes to attract North American and European millionaires.
 
Two lot resales occurred in this subdivision last year, at prices of $4.30 and $11.84 per square foot for lots of differing sizes. The buyer of those lots is now selling all holdings in this subdivision, though.  Part of the problem for developers is the very slow response time of the Trinidad and Tobago government in granting building permits.  Developers all over Trinidad and Tobago have been complaining about this.
 
In this case, the purported Town and Country Planning Grant of Permission document for rezoning to multifamily use turned out to be for a different site and a different owner, with the document truncated before it even explained the approved new land use.  The developer did not provide any documented approvals nor plans and specifications for the proposed townhouse development, which would have been required to obtain Town and Country Planning permission.
 
Just as last week in Scotland, this borrower assumed that a foreign appraiser would not check names on documents and would become overly reliant on a local appraiser who is hired only as an advocate.  This particular appraiser also scoffed at my decision to visit the Land Registry office to find comps, but he left me with no choice; his report had no comps or market data or analysis.  I found comps, and a lower value was indicated.
 
 

2 comments:

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