Development Appraisals

Question 1

RICS Doc

Answer 1

RICS Valuation of Development Property Guidance Note 2019

Question 2

Purpose of RICS Doc

Answer 2

Provides guidance in the approach to development property valuations

Complex and high sensitivity

Outlines different methods to be used – comparable and residual

Question 3

Development appraisal

Answer 3

Valuation to establish the value/profitability/viability of a proposed development based on client inputs

Question 4

Residual valuation

Answer 4

Valuation to establish the site value based on market inputs

Question 5

Steps within a residual valuation

Answer 5

Gross development value

Total development costs

Finance

Developers profit

Purchasers costs

Residual land value

Question 6

Issue with residual valuations

Answer 6

High sensitivity

Question 7

Sustainability factors with regards to development appraisals

Answer 7

CIL
S106
Densities
Infrastructure

Question 8

Hope value

Answer 8

Difference between the value of the land with planning permission and without

Question 9

What is the difference between new build comparables and second hand sales?

Answer 9

New build properties usually apply a premium on top of second hand sales

Question 10

Issues with BCIS

Answer 10

Information mostly made up of small schemes constructed by local/small developers

Large housebuilders don’t provide their info so cost therefore inflated

Cost info also from registered providers so not reflective of typical product that a private house builder would produce

Question 11

Average profit on GDV

Answer 11

15% to 25%

Dependent on scheme and developers intentions

Question 12

Residential profit

Answer 12

Profit on GDV

Question 13

Commercial profit

Answer 13

Profit on cost

Question 14

Types of planning cost

Answer 14

Affordable housing

CIL

Section 106

Section 278

Question 15

Ways to calculate finance costs

Answer 15

1. LIBOR (replaced by SONIA in 2021)
2. Bank of England base rate plus premium to reflect risk and opportunity cost
3. Rate at which client can borrow money

Question 16

How do you determine the impact of planning risk on the land value?

Answer 16

Make a percentage deduction

Depends on how confident going to get planning and the risks attached to the assumptions made/development densities and section 106 costs (will those costs be accepted by the local authority?)

Question 17

What is a sensitivity analysis?

Answer 17

Demonstrates fluctuations in certain elements on the appraisal on the land value/ profit margin/ GDV (whatever looking at)

Question 18

Overage

Answer 18

Arrangement made for sharing any receipts received over and above the profits originally expected

Question 19

Types of planning consent

Answer 19

Outline – seeks to establish whether the proposed development would be acceptable without providing full details of the development

Full – detailed planning application

Question 20

Issues with the comparable method for development appraisals

Answer 20

No two sites are the same

Question 21

What assumptions do usually make within a development appraisal/residual valuation?

Answer 21

Assume the site benefits from full vacant possession

Assume no onerous covenants or restrictions exist

Question 22

What costs does finance usually cover?

Answer 22

Cost of Land

Construction/ Development costs

Question 23

What is GDV?

Answer 23

Aggregate MV of the proposed development, assessed on the SA that the development is complete at the valuation date