US developers sell off land on the cheap
|Tuesday, 07 October 2008|
Property developers in the US are starting to sell land cheaply and reap tax benefits from selling at a loss, it has been revealed.
Analysts expect these tax motivated sales to increase as builders try to survive the worst housing crisis in US history.
They are expected to sell off swathes of land in remoter areas and concentrate on smaller developments close to urban areas where property prices are expected to recover first.
Tax law allows companies to apply losses from land and other asset sales to past profits and reap a tax refund. More sales are expected soon because the companies can apply losses only to profits earned as far back as two years and 2006 was the last profitable full year for most builders.
'It's all tax motivated. There's going to be a rash of builders shedding assets,' said Tom Reimers, executive vice president of O'Donnell Atkins, a real-estate advisory firm in Irvine, California.
By dumping land, builders are chasing cash that allows them to keep current with lenders and pay overhead expenses.
D.R. Horton Inc., the largest home builder in the US is unloading land across California at big discounts. Like many developers it bought massive parcels of land in far flung regions and expected to earn big profits as land prices rockets during the housing boom.
But now they can't afford to develop them and need the money from the sale of their assets. Horton has just sold 2,000 house lots in Desert Hot Springs, a blue collar community in the south of the state for $7.8 million, that's under $4,000 a lot. But it paid $110 million for the land.
Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4 million, about 25% of what it paid for the property in 2005, according to the county assessor.
As new-home sales sink to a 17-year low, builders can no longer count on doubling their investments by buying undeveloped parcels, preparing the property and selling the homes on it.
Horton, which built nearly 53,000 homes at the peak of the housing boom in 2006, has posted quarterly losses since the April-June quarter of last year.
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