Property Development Flashcards
Discounted cash flow method of valuation
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.
Collateral Warranty
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.
S Curve
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.
Fast-track planning application
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.
Development Management Fee
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)
Revolving Credit Facility
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.
Community Infrastructre Levy (CIL)
A local authority may set a levy on all new building in their area. The money raised is used to fund general infrastructure
Market research
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
Land Bank
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.
Development appraisal
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.
Permitted development
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.
Mezzanine
An intermediate floor in a building which is partly open to the double-height ceilinged floor below.
Englobo Land
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.
Improved Land
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.
Bridging finance
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.
Construction
Building and construction costs
Escalation
Changes in the cost or price of specific goods or services in a given economy over a period. (Alternative names: Inflation, Growth Assumptions)
Land Holding Costs
Costs related to keeping and maintaining land, such as Council Rates, Land Tax, Bills, Service Charges, etc.
Section 106 Agreements
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.
Profit
Developers profit required
Fees
Fees and transaction costs
Stamp Duty Land
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.
Land/Property
GDV – (Construction + Fees + Profit)
GDV
Gross development value
analysis of needs
identification of a need or want and the characteristic of the good or service that will satisfy it; and
market analysis
identification of a specific market and measurement of its size and other characteristics;
consumer analysis
identification of the preferences, motivations, and buying behaviour of the targeted customer.
Acquisition Costs
Incidental costs associated with securing ownership of real property such as agent commissions, mortgage application fees, professional fees and stamp duty.
Processes
mandatory procedures and processes.
Modular housing
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.
Planning Performance Agreement
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.
Agreement in Principle
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.
Pre-Sales Commissions
Proportion of sales commission that is paid at the time of exchange.
Land/Property
Purchase price of land/property/site acquisition
Unimproved Land
Raw land in its natural state void of merged improvements. (Alternative names: Undeveloped Land, Vacant Land)
Pre-Sale
Signing a contract to commit to purchase land or property that is yet to be developed. (Alternative names: Exchange, Sell Off-the-plan)
Build to rent
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.
Residual Method of Valuation
The equation for the residual method of valuation in its simplest form is as follows
JCT Contract
The Joint Contracts Tribunal produces standard forms of contract for construction, guidance notes and other standard documentation for use in the construction industry.
Red Book
the name for Royal Institution of Chartered Surveyors (RICS) Valuation
Standards
the reference book surveyors use for formal valuations which sets out
Residual Method of Valuation
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.
Construction Costs
The total cost of building a real estate project.
Sales Rate
The velocity of sale, usually measured by units/lots per month.
HMO
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.
Gross Development Value
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.
Highest and Best Use
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.
Stamp Duty Land Tax
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.
