A financial structure that focuses on improving the affordability of Nightingale apartments.

Nightingale 1 tour by Kate Longley

What is baugruppen?

‘Baugruppen’ is a housing model developed in Germany and now an accepted part of the housing sector in numerous major cities; the name translates simply to ‘building group’. The Nightingale model is, in essence, already follows the Baugruppen Model; with each project led by architects in consultation residents with a focus on intentional community, environmental design and affordability.

At Nightingale, we deliver housing at cost and reducing ‘cost’ is one of our primary drivers.
The financial structure of the Baugruppen Model dramatically reduces cost and for that reason is the next obvious step in our evolution.
 

How does the baugruppen financial structure work?

The Baugruppen Model creates potential savings in 3 distinct ways:

1.  By giving future homeowners the ability to invest their funds in the development of their own home, the     
    project requires less capital from investors. This means less interest paid to those investors and that
    represents a project saving. As this is a Nightingale project, all savings are returned to the Baugruppen
    members to reduce the price of their apartments.

2.  On formation of the Baugruppen the members go on title of the land and then engage Nightingale to
     manage the development for them. As such Nightingale does not sell them an apartment, just manages
     the process. With no ‘sale’ involved Nightingale does not have to pay GST on sales revenue, this becomes
     another project saving that reduces the cost of the apartments.

3.  Because there is no ‘sale’ there is no Stamp Duty to be paid on any of the properties regardless of
     first/second home owner status and/or price.

A standard Nightingale aims to deliver between 15 and 20% less than market value.

A Nightingale Baugruppen project aims to deliver between 25 and 30% less than market value.

 

How is Nightingale Housing making the Baugruppen Model work? 

1.  Nightingale Housing is collaborating with URBAU, a new company that is focused on delivering affordable
    housing through the baugruppen model. They have been doing fantastic work setting up the legal and
    financial structure for baugruppen, and sought rulings from the ATO and SRO to support the model’s
    savings.

2.  Nightingale Housing and URBAU find a site, we then gather together the future home owners. Once
     we've found our committed group, they enter a 'Baugruppen Joint Venture' agreement and go on title of
     the land. This group become the landowners and they engage the Nightingale Development Company to
     manage the development for them.

3.  Each of these homeowners commit 10% of their projected apartment cost upfront. Those funds are then
     invested in the project to offset development costs.

4.  These homeowners are involved in the development process from very early on, in exactly the same way as
     they are in all Nightingale projects. This gives these homeowners a greater sense of ownership and
     authorship over their ultimate home, more than they could ever achieve with a traditional developer.

5.  On completion of the building, each member of the group pays for the remaining 90% of their apartment
     in the same way that they would in a traditional purchase. This cost will be adjusted to reflect project
     savings. 

6.  Each homeowner will receive a separate title on their property in exactly the same manner of a traditional
     development.
 

Are there any risks?

The difference between a standard Nightingale model building and a Nightingale Baugruppen is that the Baugruppen Model allows future homeowners to invest their own funds in their own future homes.

While this affords significant savings, unlike a traditional ‘deposit’ which is held in a secure account by a solicitor it means your funds could be at risk. If the project were to fail, there is no guarantee that your funds could be returned.

It’s important however to note that Nightingale projects should not be viewed through the same lens as traditional property development. Arguably, the most significant risks facing property developers today are both the volatility of the housing market and purchasers defaulting on their off-the-plan purchases. We do not operate as traditional property developers, primarily because we remove the speculative nature of development and remove the incentive for profit. By building what people actually want, rather than what generates the most profit and by delivering at cost, Nightingale has established a strong following and a backlog of interested purchasers. That purchaser wait list means we pre-sell 100% of our apartments and have a strong back up should anyone pull out. By delivering housing at a considerably reduced price through the Baugruppen Model, we create a significant buffer against corrections in the housing market and dramatically reduce the likelihood of purchaser default.

On the surface it would appear that having funds involved in the development is a risk, however the Baugruppen Model actually significantly de-risks the project, reducing the likelihood of failure.
 

How do I get involved in a Nightingale Baugruppen project?

Get in touch with Nightingale Housing, we will provide more information and direct you towards our next Baugruppen project.