Development Appraisal

Question 1

What is the purpose of Development Appraisals?

Answer 1

It’s a tool to financially assess the viability of a development scheme
* Can be used to establish a residual site value
* Can be used to assess the profitability of a proposed scheme and its sensitivity to changing inputs, or assessing the viability of different uses, rents, yields or financial contributions, such as S106 or CIL payments
* Can assume a site value or calculate a sites value
* Provided guidance to the viability of the proposed development
* The valuation adopts the client inputs rather than market inputs

Question 2

What can a Development Appraisals be used for?

Answer 2

• Analysis of a development to consider whether the level of required planning obligations is viable
• Assess whether a development is viable or not based on the projected level of profit
• Assess the optimum use for a property, or to compare different development options
• Assessment of the viable levels of affordable housing contribution that can be funded from a development while still earning a reasonable profit

Question 3

What is the RICS guidance on developments?

Answer 3

RICS Professional Standard: Valuation of Development Property, 2019

Question 4

What does RICS Professional Standard: Valuation of Development Property, 2019 say?

Answer 4

The standard provides the definition of development appraisals as:
o Financial Appraisal of a development
o It is normally used to calculate either the residual site value or the residual development profit
o Can also be used to calculate other outputs

Question 5

What is the advice of the calculation of profit?

Answer 5

Consider where you adopt profit on cost or on GDV
* Profit on cost is more accurate
o Profit on GDV is more subjective
o Profit on Cost is better as client may have provided construction costs

Question 6

What RICS guidance is there on FVA’s

Answer 6

RICS Professional Standard: Financial Viability in Planning: Conduct and Reporting, 2019