Development Appraislals Flashcards
Talk me through a development appraisal you have carried out.
For the development appraisal that I carried out in Hammersmith, I had received the clients inputs.
I calculated the GDV through the sales values.
I verified their build costs with BCIS and a building surveyor in my firm.
The profit on cost generated a land value for the client.
What is the Hammersmith affordable housing provision?
It is applied on developments that will compromise of 10 self contained dwellings or more.
Why does affordable housing provisions exist?
They are there to help the housing mix and provide a more sustainable communities in boroughs.
Talk me through your steps to advising the client on your work in Hammermsith.
My advice to the client was for them to build a scheme with a less amount of units, but those units to be larger in size. I recommended that they built nine larger flats rather than 15 smaller ones.
What was the affordable housing provisions impact on the profitability?
I checked the impact the affordable housing had on the profitability on the scheme through doing a sensitivity analysis check at 5% staged reductions.
What is S106?
This is a a legal agreement between a planning authority and a developer.
Where does S106 derive from?
The Town and Country Planning Act 1990
What is the difference between CIL and a S106 agreement?
CIL is a fixed tax. S106 is site specific and negotiable.
How do you calculate CIL?
That it varies across each borough, and you can calculate it through the CIL charging schedule on the local authoritys website.
When would you apply CIL?
You would only apply it to the private part of a development. Not the affordable units. And it is applied to the GIA.
What is the purpose of CIL and MCIL?
The purpose of CIL and MCIL is to provide back into the borough, as a tax. For example it would go towards schools, roads, hospitals.
Say I am developing a residential property, but on top of an existing building, would I still apply CIL?
Yes, you would apply CIL to the new GIA of the property, it would not be applied to the total GIA of the total complete development.
What is the difference between a residual valuation and a development appraisal?
Development appraisals use client inputs and show the client the profitability of the scheme.
Residual valuations use market inputs, and find out the value of the land for your client.
How do you calculate stamp duty?
Stamp duty are in thresholds which are:
Properties up to £250,000 don’t have stamp duty.
£250,001 - £925,000 = 5%
£925,001 - £1.5m = 10%
Properties over £1.5 = 15%
How do you work out the value of land?
GDV - Costs - Profits.
How would you measure risk in a residual or development appraisal?
Risk is reflected in the contingency and the finance rate.
What is the effect of having a high land value?
It means the clients profits would be less
When would you pay CIL?
On the assumed development commencement date
What can impact a schemes viability?
Build costs, sales values, finance as they can impact cash flow and time.
Are there limitations to using BCIS?
Comes with concern around it’s accuracy as by the time it is published it is out of date.
Why do you use both argus and excel?
Because I like to cross reference and check my work on argus as it blinds the calculation process.
Did the client follow your advice around the concerns of the scheme during market and economic uncertainty?
Yes they did, they decided to cease fire on the development and to make starts when the economy had calmed down a bit following COVID 19.
Are you familiar with an RICS Guidance Note that applies to development?
RICS Guidance Note: Valuation of Development Property 1st Edition 2019.
This a supplement from the International Valuation Standards 410 Development Property.
Provides and overview of the valuation for development property.
What would is good practice when carrying out development appraisals?
Carrying out risk analysis. As changes out of our control can affect values and pricing, so it is good to present these to clients to demonstrate different scenarios.
What is the current UK finance rate?
4.25%
How would you reflect volatile costs and values in an appraisal?
Contingency
What would come under site preparation costs?
Demolition costs
Site clearing
What is the difference between debt finance and equity finance?
Debt finance = borrowed money
Equity = funds released, for example if a company were to sell its assets and use this money
Other than the BCIS, where else could you source build costs from?
Building surveyor
Quanitity Surveyor
SPONS book
Client
Talk me through your appraisal for Sudbury.
For this project, the client wanted to find out the profitability of their scheme. They had provided me with the necessary inputs which I deemed were too high for the current market.
The market was in an extremely volitile position so I carried out a sensitivity analysis check on these sales values to demonstrate their profits, should house prices drop dramatically.
The client was very appreciative of this as they hadn’t considered external factors which could affect the viability of their proposed scheme.
What fees/costs would you expect in appraisal?
Marketing costs
Agent fees
Legal fees
Planning costs
Professional fees
