Dev Apps

Question 1

What is a development appraisal?

Answer 1

A financial viability test of the ability of a development project to meet its costs. Typically the output is developers profit

Question 2

What’s a residual valuation?

Answer 2

Establishes the site land value
GDV - development costs (including profit) = residual value

Question 3

What do development costs include?

Answer 3

Construction costs
Site acquisition costs
Finance costs
Developers profit

Question 4

What is CIL?

Answer 4

Community infrastructure levy. A charging schedule published by local authorities and is based on location and development type. Charged per m2

Question 5

What’s a section 106 agreement?

Answer 5

Legal agreements between local authorities and developers which are linked to a planning permission
Aimed to balance the extra pressure created by a new development with improvements to the surrounding area
S106 requirements are set out in the adopted local plan for the area

Question 6

What are the disadvantages of a residual valuation?

Answer 6

Inflexibility in dealing with the precise timings of costs and revenue
The main variables cannot always be estimated accurately
Small changes to the variables can have significant impact on the final residual value

Question 7

What’s a sensitivity analysis?

Answer 7

Is where you re calculate the appraisal with different inputs. For example, an increase in build costs or a decrease in GDV to see what effect this has on the potential profit and residual value

Question 8

Key market considerations?

Answer 8

Interest rates and inflation which result in the following:
- rising borrowing costs, depending on the finance model adopted could mean a lower level of return
- recent pull back of borrowing products, with lenders being more selective
- build costs have remained high

Question 9

How are the finance rates calculated?

Answer 9

Bank of England base rate plus a premium. Premium is dependant on the lender as well as the developer and size and length of loan

Question 10

What are the 2 types of development finance?

Answer 10

1) debt financing - borrowing from a bank or other funding institution
2) equity financing - selling shares in a company or using own money

Question 11

What’s the typical rates for land acquisition and legal fees?

Answer 11

1.5% plus Stamp Duty

Question 12

What are the typical finance inputs?

Answer 12

9.5 - 12% on debit and 3% on credit

Question 13

Typical professional fees ?

Answer 13

5-10% depending on design stage plus £3,500 per dwelling for NHBC

Question 14

Rates for contingency?

Answer 14

5% for a standard new built
7.5% - 10% for conversions / complex builds

Question 15

What are the typical inputs for profit?

Answer 15

15-20% profit on costs or on GDV
Depends on the lender/ market and development risk

Question 16

Typical input for external works?

Answer 16

10-30% of total build costs. Depends on nature of the site and extent of works

Question 17

What was the GDV and residual value for Marsh Farm, Bideford?

Answer 17

GDV - £1.365m
Residual - £550k

Question 18

What’s profit erosion?

Answer 18

The length of time is takes for the development profit to be eroded by holding charges following completion

Question 19

What was the GDV and residual value for 31 High Street, Sturminster Newton?

Answer 19

GDV = £635,000
Residual = £165,000

Question 20

For marsh farm, what rate per sq ft did you adopt for the build costs

Answer 20

£122 per sq ft

Question 21

What’s the current bank base rate?

Answer 21

5.25%

Question 22

What’s the formula for residual value?

Answer 22

GDV - development costs (including developers profit) = residual

Question 23

In your SoE, you refer to a sensitivity analysis. Can you provide an example of when you have used this?

Answer 23

Some lenders specially request a sensitivity analysis.
When preparing one, I would change a particular input, typically an increase in build costs or a decrease in GDV, which is then used to assess the effect on the level of profit or residual value

Question 24

What do you mean by debit and credit rate?

Answer 24

Debit = cost of borrowing
Credit = earnings on savings

Question 25

How might you analyse build costs?

Answer 25

Break overall costs back to base build so you can analyse like for like on BCIS

Question 26

What RICS document is there regarding development?

Answer 26

RICS Professional Standard: Valuation of development property 1st edition

Question 27

What steakholders are involved when you carry out a residual valuation or development appraisal?

Answer 27

The bank
The borrower
The valuer
The local community
Planners

Question 28

What factors influence value?

Answer 28

The local economy & interest rates
General market conditions
Build costs
Specification of build

Question 29

What CDP did you do for development appraisals?

Answer 29

I undertook a RICS online training course for development appraisals which included the processes involved and steakholders

Question 30

Is Covid-19 still impacting developments?

Answer 30

Yes, build costs have remained high since Covid, along with the conflicts in Ukraine

Question 31

What is included in BCIS figures?

Answer 31

Base build costs and preliminaries

Question 32

How do BCIS obtain their figures?

Answer 32

Developers submit their build costs to BCIS

Question 33

Do you think BCIS figures are reliable?

Answer 33

Yes to a certain extent as you can utilise location specific costs
However the sample sizes can be small and therefore doesn’t reflect the whole market

Question 34

What pattern is typically used to reflect the finance on build costs?

Answer 34

An s-curve

Question 35

What level of contingency did you use for marsh farm?

Answer 35

10%

Question 36

What level of developers profit did you use for marsh farm?

Answer 36

20% profit on cost

Question 37

What’s permitted development?

Answer 37

Enables the change of use of certain properties without the need for planning permission.
Eg Use Class E to C3 subject to prior approval

Question 38

What is meant by the twin track approach?

Answer 38

A mix of both the comparable and residual method of valuation. At the end of the valuation, stand back and look to compare land values against comparable sites

Question 39

Who is the current housing minister?

Answer 39

Lee Rowley