What is a Development Appraisal?
A financial appraisal of a proposed development to assess viability or estimate land value or developer’s profit
It tests inputs such as GDV, costs, finance, profit, planning obligations, and shows the impact of changes to assumptions.
How does Development Appraisal differ from Residual Valuation?
- Residual valuation: Deduct all development costs + developer’s profit from GDV to find residual land value
- Development appraisal: More flexible; can calculate any output (profit, site value, values under alternative mixes)
Development appraisal is often iterative and used for viability work.
What is the RICS Guidance for valuing development property?
- RICS Valuation of Development Property, 1st edition (2019)
- Promote consistency, transparency, and professionalism
It provides guidance on how development property should be valued in accordance with the RICS Global Valuation Standards (the Red Book).
What does IVS 410 refer to in development valuation?
Market value – value of development property assuming optimal development, taking into account current and prospective market and planning considerations
May include alternative solutions for the site.
What is a key principle regarding inputs and outputs in development appraisal?
Small changes in inputs can lead to significant changes in outputs
This principle emphasizes the sensitivity of financial models.
How do planning obligations impact GDV?
- Affordable housing decreases GDV as units transact below market values
- S106/CIL do not reduce GDV but reduce residual via increased costs
Understanding these impacts is crucial for accurate financial assessments.
What is included in professional fees?
- Architect
- Planning
- QS
- Structural
- Project management
- Agents
- Surveys
- Marketing/legal
These fees are essential components of the overall development costs.
What contingency % is typically applied for straightforward new build housing?
3%
This percentage is consistent where design is established and abnormal risk is low/moderate.
How do planning conditions affect viability?
- Pre‑commencement conditions and phased triggers influence programme and cash flow
- Specific works (ecology/net gain, highways, contamination) add abnormals
These factors can increase finance and risk.
What is the typical developer’s profit margin for market housing?
15–20% on GDV
This margin is context dependent.
Why choose profit on GDV vs costs?
- Aligns with developer risk/market exposure
- Widely adopted in RICS Financial Viability in Planning context
Profit on cost is occasionally used for build-only contracting or lower market risk.
What profit assumption was used in Tingley?
- 17.5% of GDV on market units
- 6% of GDV on affordable units
These assumptions reflect the project’s financial strategy.
How is profit treated in viability assessments?
As a cost of development reflecting risk; deducted before arriving at the Residual Land Value (RLV)
Benchmarked against market norms and scheme risk per the RICS PS and local policy practice notes.
How does the timing of costs affect finance?
- Monthly cashflows capitalise costs until receipts occur
- Front loaded siteworks/abnormals and slow sales rates increase interest
Accelerated build with slow sales can increase finance even if total cost is unchanged.
What assumptions were used for finance charges?
7% in line with market norms, and similar agreed schemes
This rate is a standard consideration in financial modeling.
What does a negative residual mean?
Indicates that the costs exceed the GDV
This situation raises viability concerns for the development.
What external factors influence development viability?
- Economic
- Legislative
- Environmental
- Social
These factors can significantly impact the feasibility of a development project.
What is the PS for assessing viability in planning under NPPF 2019?
Assessing viability in planning under NPPF 2019
This document provides guidance on how to evaluate the financial viability of development proposals.
What valuation methods are mentioned?
- Residual as hybrid method
- Cashflow logic
- DRC context
These methods are occasionally referenced in development appraisals.
