Development Appraislals

Question 1

Talk me through a development appraisal you have carried out.

Answer 1

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.

Question 2

What is the Hammersmith affordable housing provision?

Answer 2

It is applied on developments that will compromise of 10 self contained dwellings or more.

Question 3

Why does affordable housing provisions exist?

Answer 3

They are there to help the housing mix and provide a more sustainable communities in boroughs.

Question 4

Talk me through your steps to advising the client on your work in Hammermsith.

Answer 4

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.

Question 5

What was the affordable housing provisions impact on the profitability?

Answer 5

I checked the impact the affordable housing had on the profitability on the scheme through doing a sensitivity analysis check at 5% staged reductions.

Question 6

What is S106?

Answer 6

This is a a legal agreement between a planning authority and a developer.

Question 7

Where does S106 derive from?

Answer 7

The Town and Country Planning Act 1990

Question 8

What is the difference between CIL and a S106 agreement?

Answer 8

CIL is a fixed tax. S106 is site specific and negotiable.

Question 9

How do you calculate CIL?

Answer 9

That it varies across each borough, and you can calculate it through the CIL charging schedule on the local authoritys website.

Question 10

When would you apply CIL?

Answer 10

You would only apply it to the private part of a development. Not the affordable units. And it is applied to the GIA.

Question 11

What is the purpose of CIL and MCIL?

Answer 11

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.

Question 12

Say I am developing a residential property, but on top of an existing building, would I still apply CIL?

Answer 12

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.

Question 13

What is the difference between a residual valuation and a development appraisal?

Answer 13

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.

Question 14

How do you calculate stamp duty?

Answer 14

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%

Question 15

How do you work out the value of land?

Answer 15

GDV - Costs - Profits.

Question 16

How would you measure risk in a residual or development appraisal?

Answer 16

Risk is reflected in the contingency and the finance rate.

Question 17

What is the effect of having a high land value?

Answer 17

It means the clients profits would be less

Question 18

When would you pay CIL?

Answer 18

On the assumed development commencement date

Question 19

What can impact a schemes viability?

Answer 19

Build costs, sales values, finance as they can impact cash flow and time.

Question 20

Are there limitations to using BCIS?

Answer 20

Comes with concern around it’s accuracy as by the time it is published it is out of date.

Question 21

Why do you use both argus and excel?

Answer 21

Because I like to cross reference and check my work on argus as it blinds the calculation process.

Question 22

Did the client follow your advice around the concerns of the scheme during market and economic uncertainty?

Answer 22

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.

Question 23

Are you familiar with an RICS Guidance Note that applies to development?

Answer 23

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.

Question 24

What would is good practice when carrying out development appraisals?

Answer 24

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.

Question 25

What is the current UK finance rate?

Answer 25

4.25%

Question 26

How would you reflect volatile costs and values in an appraisal?

Answer 26

Contingency

Question 27

What would come under site preparation costs?

Answer 27

Demolition costs
Site clearing

Question 28

What is the difference between debt finance and equity finance?

Answer 28

Debt finance = borrowed money
Equity = funds released, for example if a company were to sell its assets and use this money

Question 29

Other than the BCIS, where else could you source build costs from?

Answer 29

Building surveyor
Quanitity Surveyor
SPONS book
Client

Question 30

Talk me through your appraisal for Sudbury.

Answer 30

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.

Question 31

What fees/costs would you expect in appraisal?

Answer 31

Marketing costs
Agent fees
Legal fees
Planning costs
Professional fees