MG - Dev apps Flashcards
WORCESTERSHIRE - How did you distribute your timescales?
Over 12 months
What did you assume as a sales rate per month in the current market for dev land in worcestershire?
2 sales a month
Why is there a lower sales rate at the moment?
High mortgage rates mean lending is less affordable
Whats included within professional fees and what makes up the highest %?
architect highest %
Surveyors
Project manager
What is typical prof fees when no planning permisison?
12%
If there was planning permission what are typical professional fees?
8%
How did you consider your construction timescale?
Number of units, size of housebuilder and scheme (are there phases?)- don’t want to build units too quickly outpace with sales as they will be vacant and you will already have spent the money and be waiting for more money - sometimes should overlap or be seperate ?
What are prof fees charged on?
Build costs (inc externals)
How can profit margins be lower?
Larger housebuilders may have lower profit margins as they have in house experts and have quantum of sites
Smaller schemes may have decreased risk due to short timescales
How do build costs impact targeted profit?
High build costs = higher risk
What did you show in the Worcestershire sensitivity analysis?
we have prepared a sensitivity analysis, summarised below, demonstrating how the residual amount available for
purchase (LAND COST) would vary if sales prices and construction costs were to vary by 5% or 10%.
What is the difference between Residual Valuations and Development Appraisals?
A residual valuation will give you the value of the land (using market assumptions at a valuation date)
A development appraisal will be based on clients inputs and can establish the profitability and viability of the proposed scheme ie. can it provide the required profit, can it support the aff housing level?
What is the key points of the RICS global standard on the valuation of dev property in regard to secured lending residual valuation? (Clue - number of methods to use)
‘ … the valuer should apply a minimum of two appropriate and recognised methods to valuing development property for each valuation project … ’
RESIDUAL AND THEN CROSS CHECK WITH COMPARABLE AND SALES
Define a sensitivity analysis ?
CONVEYS RISK
A series of calculations resulting from the
residual appraisal involving one or more
variables (rent, sales values, build costs, etc.) that
are varied to show the differing results.
What type of risk analysis does the RICS global standard on the valuation of dev property recommend?
Sensitivity analysis
Please define GDV as per the RICS guidance
Value at the current date assumping the development has completed with present market conditions
What factors make up the Total Development Costs?
Acquisition Costs, Planning Obligations, Construction Costs, Letting Fees, Disposal Fees, Finance, Residual Site Value
What do you mean market trends might influence your appraisal?
- Period of high mortgage rates and low activity in terms of residential might mean that I utilise longer sales period BUT does depend on the local market in that area
Is the RICS global standard on the valuation of dev property mandatory?
Yes
WORCESTERSHIRE -How did you calculate the Gross Development Value?
- Had regard to previous phase which sold 1 year prior
- Comparable evidence
- Local agents
WORCESTERHSIRE - Where did you source your build costs?
Provided by the developer
Cross-checked with building surveying team
Worcestershire - why were the build costs high?
Due to the spec of the scheme - high spec
What does bcis stand for? 1 PRO AND 1 CON
Building cost information service
Quick
Backwards looking data
What do BCIS costs include?
Construction cost of actual building including prelims?
WORCESTERSHIRE - What kind of location was this?
Well positioned within an affluent town - proposed scheme in keeping with the architecture of the town and first phase sold well
- What is contingency and what are typical levels?
a contingency allowance for any unexpected increases in costs
due to unforeseen circumstances.
5-10% of base build cost depending on risk and market conditions
WORCESTERSHIRE- what level of contingency did you adopt?
5% - lower risk site as phase 1 completed, same developer
WORCESTERSHIRE - - What professional fees did you adopt? Why?
8% - Planning approved for the scheme
WORCESTERHIRE - - What was your construction period? Why?
12 months - provided by the developer and was reasonable for the spec / house types
What are key considerations when inputting construction timeframes?
- no of units
- size of housebuilder
- multiple or singe phases
- Cashflow - don’t want to build units too quickly outpace with sales as they will be vacant and you will already have spent the money and be waiting for more money
Worcestershire - What finance rate did you adopt? Why?
8.0% debt finance - reflected market at the time of 5.25% base rate
Worcestershire - why did your sensitivity focus on land cost and gross sales
Client wanted me to show the effect of sales and construction changing by 5% on the residual value which had been established within the appraisal
Worcestershire - what profit level did you target and why?
15% profit on gdv- dev wanted us to target this level to see if residual land val was positive
small scheme of 21 dwellings and first phase sold well - lower risk so lower profit margin
Worcestershire - did the site have planning?
Yes planning approved at reserved matters
What is outline planning permission?
Outline planning applications are used to gain an understanding as to whether the nature of a development is acceptable, this can help ensure viability up front.
NOTE that it will have to meet certain conditions to be approved at reserved matters stage
What is reserved matters planning permission?
After approval of outline planning consent, reserved matters must be submitted to gain the right for development. This deals with the outstanding details which were omitted from the outline planning application. e.g. LAYOUT
WARWICK - Why and how did you determine the appropriate price per sq ft?
To inform my opinion of GDV by using comparable evidence
WARWICK - What was the purpose of the appraisal?
A client had aquired a site and wanted to explore the most viable and profitable use for the site- HIGHEST AND BEST USE OF THE SITE
WARWICK - Was this a residential location?
Yes outside of warwick centre in a resi area
WARIWCK - In your sales assumptions for the flats did you consider anything differently?
Block of flats need to be complete before sales start
WARWICK - What level of bcis costs did you use?
I used the median costs - average scheme within this area
Can you please explain an s curve in terms of development
what is the irr and how do you calculate it
WARWICK- What were the abnormal site costs for?
contamination - unusual ground conditions may mean that deeper and more expensive foundations are needed.
WARIWCK - How do the abnormal costs affect the dev value ?
Higher dev costs which decrease reisudal value
Affected timescales - pre construction timescale provided by client to remediate the site
Warwick - how did you determine your contingency rate?
5% contingency - cross checked with line manager that this was typical market assumption
Warwick - what level of finance did you asusme?
8% debt finance - 5.25 base rate
Warwick - you say that you used general market assumptions for marketing and legal fees- what are these?
Marketing & agent - 3% all in for disposal of site
legal -0.5% for solicitors fees
WARWICK - How did the lack of planning affect your professional fees?
increased architect fees so used a totial of 10% of base build csost
WARWICK - Which scenario was more profitable?
- Housing, lower BCIS costs and higher gdv in this area - greater demand for housing compared to flats
