Development Appraisal Flashcards
What is a development appraisal?
Starting point – a developer should look to meet the Council’s planning policies when delivering a site
However, market forces can impact on whether this is possible (falls in sales values, increased build costs, higher land values etc).
Where legitimate market forces can be demonstrated it may be appropriate for a Council to reduce or withdraw its policy requirements.
The point of a viability appraisal is to consider these market forces and determine whether a developer would receive a sufficient profit to implement the scheme.
What is the key legislation regarding development appraisals?
NPPF - sustainability at the heart of development.
RICS Professional Statement - Financial Viability in Planning - Conduct and reporting
What is GDV?
total revenue that a development would generate when fully built and sold
What is the affect of affordable housing on GDV?
Private sale e.g. £250,000 Starter Homes £200,000 (c.80%) Shared ownership £175,000 (c.70%) Affordable Rent £125,000 (c.50%) Social Rent £100,000 (c.40%)
What factors are involved in the gross development costs?
Basic’ build costs of the houses Externals / infrastructure of site ‘Abnormals’ – costs unique to a particular site, not ‘typical’ on all developments Contingency allowance Professional fees Council Planning Polices (e.g. S106 obligations or CIL) Marketing costs Finance
What levels of profit are required?
Profit on cost (10% - 15%) - commercial developments
Profit on value (15% - 20%) - residential developments
Mixed schemes
PRS 8% of Gross development costs
Affordable Housing profit levels 8% Gross development cost
When would you adopt the residual method of valuation?
Site acquisition
Determining Market Value
Assessing scheme viability (Planning)
Used in the consideration of Enabling Development
What are included in abnormals?
Demolition
- Decontamination / remediation
- Flood mitigation / alleviation
- Archaeological works
- Ecology, SUDs
- Off-site highway works
- Enhanced foundation solutions etc
Sprinklers (Wales)What are contingency fees?
2% to 5% of the build costs
to equate for any consts changes/contingencies arising from development.
What are the professional fees?
Includes architects, topographical survey, structural engineering, planning consultant, highway engineer etc
Usually circa 5% to 10% of the build costs
Volume housebuilder: closer to 5% - 6% (little original design)
Small, bespoke scheme 7%-8%. Complex conversion circa 10% (or higher)
What are marketing costs?
Costs of marketing the site.
Marketing, inc show home
Legals – around £600/unit
Around 3% GDV
Lower for Affordable content
What about funding and finance?
Finance is a very important input to a development appraisal
A cashflow is needed
Usual around 7% Discount Rate and 1.5% Credit Rate including arrangement fees
Residuals assume 100% financing
Important to decide on take up rate – 3-4 per month (look for local comps.)? Larger sites – multiple developers
What are the outlined profit levels in the NPPF?
It’s not one size fits all every site should be treated seperately but NPPF indities a suitable developers profit margin of 15%-20% of gross development value
What is the residual method of valuation?
Assess GDV
- costs (construction, marketing, legal, s 106
- developers profit (15-20%)
- finance (can work on average of 7%, varies for type of developer)
= residual land value
What RICS guidance is there regarding residual valuations
RICS GN Valuation of Development Land
