Development Appraisal Flashcards
What is the purpose of a development appraisal?
To assess the financial viability of a proposed development and estimate land value or profitability, guiding decision-making.
What is Gross Development Value (GDV)?
The estimated total market value of a completed development scheme, based on forecast sales or lettings.
What is the difference between a development appraisal and a residual valuation?
A residual valuation estimates land value from a single set of fixed inputs, while a development appraisal assesses viability using flexible scenarios, often including sensitivity analysis.
What RICS guidance covers development appraisal best practice?
The RICS “Valuation of Development Property” 1st Edition, which outlines principles and standards for valuing development sites.
How would you estimate GDV for commercial elements in a mixed-use scheme?
Use comparable rental evidence, apply market yields to derive capital values, and add together expected sales or investment values.
How do you estimate GDV for a residential development?
By analysing comparable sales evidence for similar properties, adjusting for factors like location, size, and new-build premiums.
What are typical inputs into a development appraisal?
GDV, construction costs, professional fees, finance costs, contingency allowance, CIL/s106 obligations, marketing costs, and developer’s profit.
Where can build cost information be sourced?
BCIS (Building Cost Information Service), advice from quantity surveyors, cost consultants, and benchmarking against similar developments.
What is the purpose of sensitivity analysis in development appraisal?
To test how variations in key inputs (like costs, sales prices, or timings) affect the scheme’s profitability or land value.
What is developer’s profit, and how is it typically expressed?
Developer’s profit represents the reward for taking development risk and is often expressed as a percentage of either cost or GDV.
How can planning obligations affect development appraisals?
Affordable housing quotas, CIL, and s106 contributions increase development costs, potentially reducing residual land value and scheme viability.
What sustainable features might affect development appraisal inputs?
Green roofs, renewable energy installations, EV charging points, and enhanced insulation standards can increase build costs but may boost value.
Why might you use comparable new-build and second-hand sales when assessing GDV?
Because new-build comparables may be scarce or outdated, and second-hand sales adjusted for new-build premiums provide useful cross-checks.
When should you involve a quantity surveyor in a development appraisal?
When projects are complex or where more accurate, detailed build cost information is needed for reliable viability assessments.
How do you assess finance costs within a development appraisal?
Apply an appropriate interest rate to total project costs, often using a “cashflow” model if timing of costs and revenues is critical.
How should demolition costs be treated in a development appraisal?
Included as part of total build costs, especially where existing buildings must be cleared before development can proceed.
How can design changes improve viability?
By increasing GDV (e.g., adding units or increasing unit size/quality) or reducing costs (e.g., more efficient design or build methods).
What is a residual land value?
The maximum price a developer can pay for the land after deducting all development costs and required profit from the GDV.
What happens if the residual land value is negative?
It suggests the proposed scheme is not financially viable under the current assumptions, requiring adjustments to improve feasibility.
Why is it important to align development proposals with the local plan?
Because planning policy compliance increases the likelihood of permission being granted, reducing project risk and enhancing value.
How should you deal with uncertain planning prospects when appraising a site?
Reflect higher risk in the required profit margin, use contingency allowances, and stress-test appraisals under different planning outcomes.
What external factors could affect development viability?
Economic downturns, interest rate rises, construction cost inflation, changes to planning policy, or shifts in demand for specific uses.
How do commercial yields impact GDV estimates for office or retail elements?
Higher yields reduce GDV (because buyers will pay less for a given rent), while lower yields increase GDV by enhancing capital values.
What is the role of affordable housing in a residential development appraisal?
It affects both the GDV (since affordable units sell for less) and development costs (due to potential grant funding or developer obligations).
Why is timing important in a development appraisal?
Because delays increase finance costs, expose the project to market risk, and can impact viability by affecting sales values and costs.
