Property Development

Question 1

Discounted cash flow method of valuation

Answer 1

A business planning tool which models income and expenditure cash flow. This can be a means of valuation which shows cost and income over the life of a project, discounted at a rate which reflects risk, and the cost of capital.

Question 2

Collateral Warranty

Answer 2

A contract under which a professional consultant (such as an architect), a building contractor or a subcontractor warrants to a third party (such as a funder) that it has complied with its professional appointment, building contract or sub-contract.

Question 3

S Curve

Answer 3

A display of cumulative costs plotted against time. The name derives from the S-like shape of the curve, flatter at the beginning and end and steeper in the middle, which is typical of most projects.

Question 4

Fast-track planning application

Answer 4

A fast track application process is offered by some councils and allows a guarantee to process and determine planning applications more quickly, in return for a higher application fee.

Question 5

Development Management Fee

Answer 5

A fee, usually charged as a percentage of the overall project cost, to cover the costs associated with administering and managing a project. (Alternative name: Project Management Fee)

Question 6

Revolving Credit Facility

Answer 6

A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes and can fluctuate each month depending on the customer’s current cash flow needs.

Question 7

Community Infrastructre Levy (CIL)

Answer 7

A local authority may set a levy on all new building in their area. The money raised is used to fund general infrastructure

Question 8

Market research

Answer 8

A process of gathering, generating and interpreting evidence on supply and demand patterns with the objective of using it to make better development decisions. Your evidence gathering might broadly cover

Question 9

Land Bank

Answer 9

A stock of land held by a developer with the intent to hold it for future development or until such a time as it is profitable to sell on to others.

Question 10

Development appraisal

Answer 10

An assessment of a project’s viability that includes investigation into all project aspects and anticipated outcomes. Appraisal techniques may include Residual Valuation or Discounted Cash Flow analysis. A well thought out property development appraisal will help you identify your cash flow needs, a critical success factor for any developer.

Question 11

Permitted development

Answer 11

An explicit planning permission is not always required; some forms of ‘development’ are allowed under what is called Permitted Development. These rights comprise works and change of use that can be carried out without the requirement of an application for planning permission.

Question 12

Mezzanine

Answer 12

An intermediate floor in a building which is partly open to the double-height ceilinged floor below.

Question 13

Englobo Land

Answer 13

An undeveloped lot, group of lots or parcel of land that is zoned to allow for, and capable of significant subdivision into smaller parcels under existing land use provisions.

Question 14

Improved Land

Answer 14

Any permanent development made to raw land which increase its usability, such as installation of water utilities, sewer, roads and building structures and thereby increase its market value.

Question 15

Bridging finance

Answer 15

Bridging finance is a short-term financing option for property developers aimed at overcoming a temporary financial need until a more permanent solution is found. It can be an effective way of getting fast access to finance. Though bridging loan rates are often higher than conventional loans their short-term nature means they can be cleverly used to maximise profit.

Question 16

Construction

Answer 16

Building and construction costs

Question 17

Escalation

Answer 17

Changes in the cost or price of specific goods or services in a given economy over a period. (Alternative names: Inflation, Growth Assumptions)

Question 18

Land Holding Costs

Answer 18

Costs related to keeping and maintaining land, such as Council Rates, Land Tax, Bills, Service Charges, etc.

Question 19

Section 106 Agreements

Answer 19

Developers and local authorities agree a contract relevant to a specific development that will mitigate its impact. This can include the provision of affordable housing and payment for additional infrastructure.

Question 20

Profit

Answer 20

Developers profit required

Question 21

Fees

Answer 21

Fees and transaction costs

Question 22

Stamp Duty Land

Answer 22

From April 2016, second-home buyers and buy-to-let investors have faced a new higher rate of stamp duty when buying a property. An extra 3% surcharge now sits on top of the rate for the value of property that they are buying.

Question 23

Land/Property

Answer 23

GDV – (Construction + Fees + Profit)

Question 24

GDV

Answer 24

Gross development value

Question 25

analysis of needs

Answer 25

identification of a need or want and the characteristic of the good or service that will satisfy it; and

Question 26

market analysis

Answer 26

identification of a specific market and measurement of its size and other characteristics;

Question 27

consumer analysis

Answer 27

identification of the preferences, motivations, and buying behaviour of the targeted customer.

Question 28

Acquisition Costs

Answer 28

Incidental costs associated with securing ownership of real property such as agent commissions, mortgage application fees, professional fees and stamp duty.

Question 29

Processes

Answer 29

mandatory procedures and processes.

Question 30

Modular housing

Answer 30

Modular housing, another word for pre-made, factory-built homes, is fast gaining the favour of government as a time and cost-efficient approach to homebuilding and a key part of the solution to the current housing crisis. Small and larger developers across the UK are already demonstrating that pre-made and factory-built is no longer synonymous with ugly identikit homes.

Question 31

Planning Performance Agreement

Answer 31

On larger schemes a Planning Performance Agreement (PPA) serves a similar function to a fast-track planning application, where the applicant may agree on a timeframe and possible resourcing levels with the council for a certain cost.

Question 32

Agreement in Principle

Answer 32

Prior to finding a property to purchase a purchaser can ‘pre-qualify’ their borrowing ability prior to a full mortgage application. Vendors will view any purchasers who have an agreement in principle as being in a stronger position to move quickly.

Question 33

Pre-Sales Commissions

Answer 33

Proportion of sales commission that is paid at the time of exchange.

Question 34

Land/Property

Answer 34

Purchase price of land/property/site acquisition

Question 35

Unimproved Land

Answer 35

Raw land in its natural state void of merged improvements. (Alternative names: Undeveloped Land, Vacant Land)

Question 36

Pre-Sale

Answer 36

Signing a contract to commit to purchase land or property that is yet to be developed. (Alternative names: Exchange, Sell Off-the-plan)

Question 37

Build to rent

Answer 37

The Build to Rent scheme was launched in 2012 as part of a series of government initiatives to increase the supply of high quality homes available for market rent in the private sector. The Build to Rent Fund is a fully recoverable commercial investment and is available as a loan to cover up to 50% of eligible development costs. Developers pay the loan back by refinancing the deal or selling on to an institutional investor within one to two years of completing the scheme. The Homes and Communities Agency’s Build-to-Rent Fund Continuous Market Engagement Prospectus January 2015 sets out eligibility and offers bidding guidance for developers.

Question 38

Residual Method of Valuation

Answer 38

The equation for the residual method of valuation in its simplest form is as follows

Question 39

JCT Contract

Answer 39

The Joint Contracts Tribunal produces standard forms of contract for construction, guidance notes and other standard documentation for use in the construction industry.

Question 40

Red Book

Answer 40

the name for Royal Institution of Chartered Surveyors (RICS) Valuation

Question 41

Standards

Answer 41

the reference book surveyors use for formal valuations which sets out

Question 42

Residual Method of Valuation

Answer 42

The residual method of valuation helps property developers to determine a realistic value for their land or property purchase. Identifying a realistic idea of land or property values in this way helps a property developer to determine other expenditure and the maximum that they can afford to spend on say site preparation, land remediation, build-costs, professional fees etc. to achieve a profitable project outcome.

Question 43

Construction Costs

Answer 43

The total cost of building a real estate project.

Question 44

Sales Rate

Answer 44

The velocity of sale, usually measured by units/lots per month.

Question 45

HMO

Answer 45

There is a complex legal definition as to what exactly constitutes a House in Multiple Occupation (HMO). However, it can be loosely defined as a building where more than one household lives and shares facilities. A household, in this case, is where members of a family live together, including unmarried couples. If you’re developing an HMO, you’ll have certain responsibilities. Your first port-of-call should be with the local council, who will let you know if you need a licence, and also, who to contact regarding fire safety regulations.

Question 46

Gross Development Value

Answer 46

To many property developers, GDV is one of the most important performance metrics that they will monitor throughout the course of a project as it helps to highlight the capital and rental value of their property or development project when all redevelopment works have been completed. Put simply, gross development value is the estimated value that a property or new development would fetch on the open market if it were to be sold in the current economic climate.

Question 47

Highest and Best Use

Answer 47

Valuation concept meaning the possible use of a property that would produce the highest market value. The use must be legally allowable, physically possible and financially feasible.

Question 48

Stamp Duty Land Tax

Answer 48

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England, Wales and Northern Ireland. The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. SDLT no longer applies in Scotland. Instead you pay Land and Buildings Transaction Tax when you buy a property.