Development Appraisals L1 Flashcards
What is CIL?
CIL stands for the Community Infrastructure Levy. It is a charge levied by local authorities on new developments to help fund infrastructure needed as a result of development (e.g. transport, schools, open spaces). Its formula‐based nature provides transparency and predictability in funding community improvements.
What is S106?
S106 refers to Section 106 of the Town and Country Planning Act 1990. It is a negotiated planning obligation between a developer and the local planning authority, designed to mitigate the specific impacts of a development. Typical obligations include affordable housing, open space, or transport improvements.
What are the differences between CIL and S106?
CIL is a pre-determined, formula-based levy applied uniformly, while S106 is a bespoke, negotiated agreement tailored to the impact of an individual development. CIL offers greater certainty due to published rates, whereas S106 outcomes can vary based on negotiations. CIL is applicable broadly across a local authority area, while S106 obligations are project-specific.
How would you estimate likely S106 and CIL contributions?
For CIL, use the local authority’s published CIL rates and methodology. For S106, review recent S106 agreements in the area and consult with planning officers to understand local negotiation trends. Best practice includes benchmarking against similar developments and incorporating RICS guidance on transparency.
How can a development appraisal be used in valuing developments?
A development appraisal compares the Gross Development Value (GDV) against all development costs (land, construction, finance, fees, etc.) to assess viability. It ensures that a project delivers an acceptable profit margin, informs pricing decisions, and supports risk assessment, in line with RICS valuation standards.
Tell me about planning/costs/GDV/individual site elements in relation to a development appraisal?
Consider planning policies, restrictions, and contributions as key viability drivers. Accurately estimate land acquisition, construction, professional fees, and contingencies. Derive GDV from market comparables and forecasts for the completed property. Assess unique characteristics that could affect both costs and market value.
What is a Monte Carlo simulation?
It is a quantitative risk analysis method that uses random sampling and probability distributions to simulate a range of outcomes. In development appraisals, it helps assess the impact of uncertainty in variables such as costs, sales prices, and project duration.
What is a sensitivity analysis?
Sensitivity analysis examines how changes in one key variable (while holding others constant) affect the overall project outcome. It identifies which assumptions most influence the viability of a development.
How do you carry out a sensitivity analysis?
Step 1: Identify critical variables. Step 2: Adjust each variable individually over a plausible range. Step 3: Re-calculate the project’s viability for each change. Step 4: Present the results to highlight key sensitivities.
What variables might you change and why?
Construction costs, sales prices (GDV), project duration, and interest rates. Altering these variables helps identify where the development’s risks lie.
What factors affect sensitivity of a development appraisal?
Market conditions, cost uncertainties, finance conditions, planning risks, and project scale and complexity.
Tell me about your understanding of RICS Financial Viability in Planning/Valuation of Development Property.
RICS Financial Viability principles ensure that all aspects of a development’s costs, risks, and returns are comprehensively and transparently assessed, ensuring that viability assessments are robust and compliant with RICS standards.
Tell me about your understanding of incorporating affordable housing into development appraisals.
Adjust GDV to reflect potentially lower market values for affordable units. Include direct costs or in-lieu contributions required under S106 or planning policies. Benchmark using local market data.
What is an S curve?
An S curve is a graphical tool that plots cumulative progress over time, showing slow initial progress, rapid mid-phase development, and a tapering off towards completion.
Tell me about your due diligence when undertaking a development appraisal.
Legal and planning checks, market research, cost verification, and risk sensitivity analysis.
What sources of information do you use when undertaking a development appraisal?
Local authority documents, market data, cost indices, and RICS publications.
How do you calculate GDV/NDV/finance costs/project costs/project timescales?
GDV is estimated using market comparables. NDV is GDV less costs. Finance costs are derived from the interest rate applied to the loan. Project costs are the sum of all expenses. Project timescales are based on detailed scheduling.
How do you calculate developer’s profit?
Developer’s profit is calculated as the difference between the project’s final value (typically NDV) and the total costs incurred.
What other metrics can you produce from a development appraisal?
Profit metrics, investment returns, break-even analysis, cost ratios, and sensitivity & risk measures.
What is the difference between a residual valuation and a development appraisal?
A residual valuation focuses on land pricing by subtracting anticipated development costs from GDV, while a development appraisal provides a comprehensive financial analysis of the entire project.
