The amount of land with a property determines its growth multiple.
The amount of land content a property has is a key determinant of its future growth. The more land area a property has, the higher its growth in equity value. For example, if you owned two identical residential buildings in the upmarket Melbourne suburb of Toorak, with one on 500 square metres and the other on 2,000 square metres, we know the residence on the larger piece of land would sell for many multiples more.
Whether in Toorak or not, the same principle applies, the more land with your property, the higher its growth component.
This ratio is land price divided by total price of the project times by 100, to be expressed as a percentage:
Land Content Ratio (LCR) = land price / total property price *100
The video below explains this concept with a property Jonathan purchased in Country Victoria.
Capital Edge only recommends projects where there is a sizeable land component; hence, as a general rule, we avoid apartments and developments with high-density townhouses.
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