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Subdivide to combat rising interest rates (December 2022)

Do you want to continue to pay more and more to your bank, increasing their profits while lowering your equity or lifestyle? In a climate of rising interest rates, it makes sense to step back and question how important it is to hold onto a large section or even all of the farm.

Subdividing to sell off part of your property and carving a decent chunk off the bank mortgage is an option to consider in times like these.

Councils are being forced to modify their District Plan Subdivision Rules to enable the intensification of urban areas, so this may help you with your rental property or bach at the beach. These changes are being led by Central Government in response to the housing shortage and the spiralling cost of housing land. So, unless you need that extra space around your house or bach, why not consider selling it for someone else to build on and lower your borrowing costs at the same time.

Whilst the Government's goal is to limit urban spread onto farmland, there is still a genuine case, and steady demand, for lifestyle blocks and these can often be established on the less productive farmland.  Many councils will allow this rural subdivision in moderation.  The rural subdivision rules are continually changing, with the latest policy aimed at keeping these subdivisions off highly productive soils. So the hilly areas, not suitable for mechanical farming methods, will be favoured in the long term as the subdivision rules evolve. Opportunities still exist at this point though.

Subdivision gives you choices. Once an additional title is created through subdivision, you have the choice to either hold or sell.  So subdividing can be an insurance policy as much as an immediate way to reduce debt. Even starting the process with obtaining Resource Consent will lift the value of your property and give you some choice in the future.  In addition, you are then well on your way to creating that independent title that you can sell should the economic conditions worsen. I’ve seen many farmers build the flexibility of multiple titles into their farm management and retirement plans.

The subdivision process takes time to complete.  However, an initial assessment can be readily made against the local council rules to establish the feasibility. Once the process is started, the potential gain in value will be clear to all. So, if you can see the pressure coming on through ever-increasing mortgage interest rates, or you just want to maximise the value of your property, you might like to check out the potential to subdivide and sell a portion of your land. Please feel free to give us a call to discuss your situation.