Development 3

Question 1

What is a discounted cash flow?

Answer 1

The movement of money by way of income, expenditure and capital receipts and payments during the developments.

Question 2

What are the advantages of using the DCF calculation over a residual valuation for a development site?

Answer 2

EXPLICIT – allows for inflation to be added
See the costs in the cash flow explicitly
Considers the time value of money – discounts back to today’s value

Question 3

What are the different types of planning consent?

Answer 3

Full planning consent
Outline Planning consent
Permitted development rights

Question 4

What is the profit erosion period?

Answer 4

The length of time it will take for the development profit to be eroded by holding charges following scheme completion

Question 5

What is the profit erosion period?

Answer 5

The length of time it will take for the development profit to be eroded by holding charges following scheme completion

Question 6

When is VAT payable?

Answer 6

On all professional fees

Question 7

As a developer, what factors are you considering pre-development?

Answer 7

• Property market - supply, demand, economic cycle
• Location
• Access/Transport
• Amenities
• Supply competition - other surrounding schemes.

Question 8

What requirement must be in place to secure planning permission for demolition?

Answer 8

Environmental impact assessment - assesses impact on the landscape and socio-economic impact.

Question 9

What makes up the professional fees?

Answer 9

12% plus VAT of total construction costs for the professional fees

• Architects
• Consultant
• Project Manager
• Structural Engineers

Architects are usually largest proportion of total fee’s

Question 10

Guidance on development appraisals?

Answer 10

RICS Guidance Note Valuation of Development Property 2019 which should be read in conjunction with the red book

Question 11

What are three sensitivity analysis?

Answer 11

1. Simple sensitivity analysis
2. Scenario analysis
3. Monte Carlo simulation

Question 12

Simple sensitivity

Answer 12

Sensitivity analysis of key variables - such as the yield, GDV, build costs and finance rate

Question 13

Scenario analysis

Answer 13

Change scenarios for the development content/timing/costs, such as phasing the scheme or modifying its design

Question 14

Monte Carlo simulation

Answer 14

Computational technique that uses random sampling to model likely probablility or results