10. RICS Professional Standard: Valuation of development property, 2019

Question 1

What is the purpose of RICS Professional Standard: Valuation of development property, 2019?

Answer 1

To supplement IVS 410 “Development property”, which provides a detailed overview of the valuation of development property.

Question 2

RICS definition of development property?

Answer 2

“interests where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or are in progress at the valuation date”

Question 3

The advice may be appropertie to include for:

Answer 3

• The construction of buildings
• Previously undeveloped land which is being provided with infrastructure
• The redevelopment of previously developed land
• The imporvement or alteration of existing buildings or structures
• Land allocated for devleopment in a statutory plan

Question 4

When valuing development property, what are some assumptions and/or special assumptions that must be clearly identified in the valuation report?

Answer 4

Marriage value or hope value

• there will be a deferment if there is no planning to begin with
• Should defer planning (and construction) by estimate of time it will take to get planning
• Also an additional cost for planning permission at the start (as it would not be assumed in this instance).

Question 5

How should a valuation undertaken by the market comparison approach be cross-checked?

Answer 5

By reference to the residual method

Question 6

What does the Professional Stnadard state about best practice and reliance on a single approach or method?

Answer 6

“best practice avoids reliance on a single apporach or method of assessing the value of a development property”

Question 7

When might a DCF technique be best employed for development property?

Answer 7

For complex and/or lengthy development schemes.

Whereas a basic residual mdel can be used in other cases

Question 8

Why does best praxctice require risk analysis?

Answer 8

so that changes to inputs which might affect the valuation of development property can be assessed and various scenarios can be modelled.

Further, risks and return levels and assumptions should be explicitly stated in the valuation report

Question 9

Which approaches can be used to check against each other when valuing land in the course of development?

Answer 9

Determine the value of the land plus costs expended at the valuation date

and/or

the completed development value minus the costs remaining to be expended at the valuation date

Question 10

For most purposes, how should the valuation be reported?

Answer 10

As a single figure, except where there is potential for significant variation
(which should also be reported, e.g. where there is uncertainty surrounding the valuation, including different options that may have been identified)