Development Appraisals Flashcards
What is RICS guidance in this area?
RICS Valuation of Development Property Guidance Note 2019
Red Book
IVS 410 - Development Property
What is the purpose of RICS Valuation of Development Property Guidance Note 2019?
- Provides guidance in the approach to development property valuations.
- Complex and high sensitivity.
- Outlines different methods to be used - comparable and residual.
What is a Development Appraisal?
Valuation to establish the value/ profitability/ viability of a proposed development based on client inputs.
What is a Residual Valuation?
Valuation to establish the site value based on market inputs.
What are the steps within a residual valuation?
- Gross Development Value (GDV)
- Total Development Costs
- Finance
- Developers Profit
- Purchasers Costs
- Residual land value
What is the issue with residual valuations?
High sensitivity
Sustainability factors with regards to development appraisals?
CIL, S106, Densities, Infrastructure
What is hope value?
Difference between the value of the land with planning permission and without.
What is the difference between new build comparables and second hand sales?
New build properties usually apply a premium on top of second hand sales.
Issues with BCIS?
- 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.
Average profit on GDV?
15% to 25% (Dependent on scheme and developers intentions)
Residential profit
Profit on GDV
Commercial profit
Profit on Cost
Types of planning costs?
Affordable housing
CIL, S106, S278
Ways to calculate finance costs?
- LIBOR (replaced by SONIA in 2021).
- Bank of England base rate plus premium to reflect risk and opportunity cost.
- Rate at which client can borrow money.
What is a sensitivity analysis?
Demonstrates fluctuations in certain elements on the appraisal on the land value/ profit margin/ GDV (whatever looking at).
What is an overage?
Arrangement made for sharing any receipts received over and above profits originally expected.
Types of planning consent?
Outline - seeks to establish whether the proposed development would be acceptable without providing full details of the development.
Full - detailed planning application.
Issues with the comparable method for development appraisals?
No two sites are the same.
What assumptions do you usually make within a development appraisal/ residual valuation?
- Assume the site benefits from full vacant possession.
- Assume no onerous covenants or restrictions exist.
What costs does finance usually cover?
- Cost of Land
- Construction/ Development Costs
What is GDV?
Gross Development Value -
Aggregate MV of the proposed development, assessed on the special assumption that the development is complete at the valuation date.
Impact of Mini Budget on development appraisals?
- Increased fuel prices/ high inflation; increased build costs
- Rising interest rates; more expensive finance
- Rising interest rates; expensive borrowing, unaffordable mortgages leading to less demand for housing - could lead to extended marketing timescales
- Revised stamp duty rates; potentially make housing more attractive as less stamp duty to be paid
- Brexit; shortage of labour and construction materials - increased build cost
What are Section 106 costs? Provide example.
A section 106 agreement is designed to make a development possible that would otherwise not be possible, by obtaining concessions and contributions from the developer.
It forms a section of the Town And Country Planning Act 1990.
It can be negotiated.
EXAMPLE - Highways, Education, Public Open Space
What are Section 106 costs? Provide an example.
A section 106 agreement is designed to make a development possible that would otherwise not be possible, by obtaining concessions and contributions from the developer.
It forms a section of the Town And Country Planning Act 1990.
It can be negotiated. Site-specific.
EXAMPLE - Highways, Education, Public Open Space
What is CIL? Provide an example.
A Community Infrastructure Levy (CIL) is a new planning charge introduced by the government via the Planning Act 2008.
It provides a means of ensuring that a new development contributes to the cost of the infrastructure that the development will rely on, such as schools and roads.
The levy applies to most new buildings and charges are based on the size and type of the floor space being created.
The idea behind the CIL is that it’s fairer, faster and more certain than the system of S106 planning obligations, which are negotiated on a case-by-case basis.
Cannot be negotiated. Some local authorities do not have an adopted CIL charging schedule.
What are the different types of affordable housing?
- Affordable Rent
- Shared Ownership
- Intermediate (Discounted Open Market)
For student accommodation, what are some examples of operating costs?
- Maintenance & cleaning
- Electricity
- Insurance
- Internet costs
- Water
Types of additional funding available?
Mezzanine finance
What is an agreement for lease?
A contract between two or more parties to enter into a lease, following the satisfaction of conditions set out in the agreement.
