Development Appraisal Level 1 Flashcards
What is the new legislation around CIL and S.106
- Regeneration Bill
- Under review to have one charge as 1 cost (Infrastructure Levy)
- More in line with CIL
- Key difference to will be set a a % of final gross development
- local authorities will set a rate in their area
What are included in development costs?
- Constructions costs
- Professional fees
- Planning
- Contingency
- Finance
Why ae build costs on a GIA basis?
Same as BCIS so comparable with BCIS data
What are typical types of financing?
- Bank lending
- Equity
- Joint Ventures
Would the end of the stage of development impact value?
Yes - de-risk
- Less contingency
- Keener yield due to increased security
- Indication of interest - idea of how it may succeed?
Likely to increase in value
What % of debt do you assume?
Argus assumes 100% debt
What are overhead costs?
Overheads are the calculated costs of running the company contracted to carry out the project e.g. staff costs. Site overheads (preliminaries) include site accommodation, welfare provision and insurance
What are the limitations of Residual appraisals?
Very susceptible to market changes as it is based on market inputs
1. Relies on accurate inputs
2. It does not consider timing of cash flows
3. Sensitive to minor changes
4. Implicit assumptions hidden and not explicit (unlike DCF).
Who sets NPPF?
The UK government - Department for Levelling Up, Housing and Communities (DLUHC) in September 2021
If the development become very complex with lots of additions from the client what would you?
- Get advice from a supervisor
- They may advise using a DCF as it simplifies the information
What is an example of a S.106 agreement?
Affordable student units ie 30%
How would contaminated land impact your development appraisal?
It takes time to remove so may be impacted in the yield
How did you deduce you sales and legal fees?
They were in line with the market
Why is BCIS data not necessarily accurate?
Only 25% of data is actually updated
Not represntative of the whole market
How might completion date impact value?
Building Safety Act states that you need 2 months after completion to sign off before it can be let.
This means if completed after June it will eat into the letting period
What are the main concepts within the Financial Viability in Planning: Conduct and Report? ONE
Ensures that RICS members have acted with objectivity and impartially,
How many requirements are within the Financial Viability in Planning: Conduct and Report?
14 mandatory requirements
What are the main concepts within the Financial Viability in Planning: Conduct and Report? TWO
To support the statutory planning decision process
What are the main concepts within the Financial Viability in Planning: Conduct and Report? THREE
To support and complement the government’s reforms to the planning process.
What are the main concepts within the Financial Viability in Planning: Conduct and Report? FOUR
To ensure that surveyors recognise their professional duties whilst working with significant public interest obligation mixed with commercial pressure
What is a development appraisal?
Tool to financially assess viability of development scheme.
What can a development appraisal be used to assess?
- The viability/suitability/profitability of proposed scheme
- Its sensitivity to changing inputs
assessing viability of different uses, rents, yields, S106, CIL etc. - Can be used to establish residual site value or can assume site value.
What are the inputs based off for a development appraisal?
Can be based on client inputs.
What is the difference between a development appraisal and a residual valuation?
Development appraisal will give you the profitability of the proposed the development
Residual valuation will give you the land value
PROFIT V LAND VALUE
What is the differences in inputs between a development appraisal and a residual valuation?
Residual will use market-led costs = MARKET VALUE
Development appraisal will be on costs provided by client (play with to get desired profit levels)
Key difference (HELP)
Residual valuation arrives at Market Value of development site.
Whereas, development appraisal does not produce a Market Value but provides guidance as to whether the proposed development is commercially viable.
What is the calculation of a development appraisal?
GDV
– Development Costs
– Land Value
= Profit
Residual site valuation calculation
GDV
-Development costs
-Profit margin
= Site Value
What factors would impact the viability and how?
Physical
- Contamination
Financial
- Current economic climate ie inflation (Finance rate)
- Construction costs
- Professional fees
- Contingency
Planning
- S.106 agreements
- Community Infrastructure Levy (CIL)
- S.278 – Highways -
How are development appraisals sensitive to market conditions?
Eg a small change in constructions costs can have a big impact on profit in costs
Why are construction costs increasing?
Inflation
- Increase cost of materials
- Increase cost of labour
what are the pros of using argus developer?
- Quick and easy to use
- Standard piece of software
what are the cons of argus developer?
- Potential for human error
- Easy to lose track of changes made
- Assumes 100% loan to value which is unrealistic- Formulas in the background
What did you learn in your Argus developer training?
- how to input GDV
- how to input fees as a % of development costs
- how to run a sensitivity analysis
What was your PBSA development, Bristol?
Gas Lane - development appraisal
What was the comparable evidence process?
- Assessed the location/was it a proven location? (proximity to Universities, amenities, transport connections etc)
- Proposed specification
- Proposed amenity offering
- Typical week length offering
What is CIL?
Charged by Local Planning Authorities for new development area (on the uplift on GIA). It is not necessarily site specific, and can be used on local infrastructure such as schools and healthcare.
