Development Appraisals L3 Flashcards
What basis of measurement are BCIS Cost Estimations provided against?
£/ sq m on a GEA basis.
Have you Actually been onto the BCIS? How Does it Work?
Yes:
1. Average prices split into deciles
2. Location Factor
3. Size of development
What is a section 75 agreement?
Section 75 of the 1997 Town and Country Planning Act (Scotland). It requires developers to provide a certain amount of affordable housing as part of their development or make a financial contribution to provide infrastructure.
The agreement may restrict use of the land and/ or regulate activities on the land being developed. The agreement may also oblige the land owner to make a financial contribution to the Council which must be used for the purposes that are outlined in the section 75 agreement.
Level 1
What is the difference between a development appraisal and a residual valuation?
A development appraisal is a series of calculations to establish the viability/profitability of a proposed development based upon client inputs
A residual is a valuation of a site to find the market value of the site based on market inputs.
Level 1
What assumptions does a residual appraisal use?
Market
Level 1
What assumptions does a development appraisal use?
Client specific and market.
How do you choose a finance rate?
Based on current market assumptions. If known, should be based on specific rate at which client can lend.
Level 1
Is 100% finance rate realistic?
No, but it’s the market normal/standardised practice and used in an appraisal to reflect the opportunity cost of capital.
Level 1
What is GDV and how is it calculated?
Gross Development Value: This is a market value of the proposed completed development scheme, assuming present values and current market conditions.
Level 1
What is included in your Total Development Costs?
- Site preparation (demolition, landfill tax, remediation works)
- Build costs
- Planning costs (including s.106 and CIL if applicable)
- Professional Fees
- Finance Costs
- Contingency
- Sales Costs
Level 1
What is included in professional fees?
Usually 10% - 15%. Includes architects, structural engineers, etc.
Level 1
What is included in marketing costs?
Brochure
Advertising - websites, paper etc.
For Sale Boards.
Drone footage/photography
Fees usually around 1-2% of GDV.
Level 1
What is a usual Developer’s Profit assumption?
Usually 20% of profit (blended rate 5% for AH)
Level 1
Can you explain the concept of development finance.
- Finance for borrowing money to purchase the land is calculated on a straight line basis over the length of the development period.
- Calculation of finance required for the construction period is to assume the total cost of construction (including fees) over half of time period using the S curve which means that that the assumption of halve the interest that would be borrowed for all of the construction period.
- The S Curve reflects the incidence of costs being drawn down
- Assumes 100% debt finance
Level 1
What is VAT payable on?
Purchase price
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What is profit erosion?
The length of time it will take for the development profit to be eroded by holding charges following the completion of the scheme until the profit from the scheme has been completely drawn down.
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What are the limitations of development appraisals?
- Importance of accurate information and inputs.
- Very sensitive to minor adjustments.
- Always cross check with comparable land values if possible.
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What are the forms of sensitivity analysis?
Simple sensitivity – analysis of key variables (eg. Ield, GDV, build costs).
Scenario analysis – timing and costs
Monte Carlo
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What does a cashflow look like?
Timeline of income and costs over a set period of time.
Shows the timings of assumptions made.
Cost of finance.
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What does a planning permission contain? What are typical conditions included?
When planning permission was granted.
Conditions of approval.
Reference.
Description of development.
Location of development.
Date of application.
Level 1
What do you need planning permission for?
Anything that constitutes development under the Town and Country Planning Act 1990.
- New Build
- Major Changes to Exisitng Building
- Change of Use
- Listed Buildings and Conservation Areas
- Demolitions
- Boundary walls and fences
- Certain Advertisements
Level 1
What don’t you need planning permission for?
Maintenance/interior alterations.
Permitted development.
Level 1
In a development appraisal, give some examples where risk might be reflected?
Contingency
(Resale prices
Build Costs)
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How long does planning permission last for?
Usually 3 years.
Outline applications normally last 3 years with development taking place within 2 years of the approval being granted.
You can apply for an extension
Level 1
What does a cashflow look like?
Timeline of income and costs over a set period of time. Shows the timings of assumptions made and the cost of finance.
Time cost of money.