1
Q
Best comparable for market approach (GDV)?
A
Nearby scheme.
Brooklands development - have sold units in the borough.
2
Q
Tell me about your understanding of:
Valuation of Development Property 2019
A
Provides standards and guidance for valuations of development property, ensuring consistency and transparency in the valuation process.
3
Q
Talk me through the key inputs when undertaking a development appraisal.
A
Land value: The cost of acquiring the land for the development.
Development costs: Expenses related to construction, design, planning, and legal fees.
Residual value: The estimated value of the completed development after deducting costs.
Developer’s profit: The anticipated profit margin for the developer.
4
Q
Which industry inflation indices can you use?
A
Consumer Price Index (CPI)
BCIS All-in Tender Price Index TPI)
5
Q
What is IRR?
A
It’s a financial metric that measures the profitability of an investment. It’s the discount rate at which the net present value (NPV) of an investment becomes zero.
In other words, it’s the rate at which the investment’s expected cash inflows equal its initial cash outflows (breaks even).
6
Q
What’s the difference between a DCF development appraisal and a ‘normal’ development appraisal?
A
DCF development appraisal provides a more in-depth analysis of cash flows, using discounting and calculating NPV & IRR, while normal development appraisal offers a broader overview with less detailed cash flow analysis.
7
Q
What is mezzanine finance and how is it priced?
A
An addition over and above the initial senior debt loan.
Priced higher as more risk
8
Q
What is the difference between senior debt and equity finance?
A
Senior debt is a loan with a fixed return and priority over equity claims. (like a mortgage)
Equity finance is the process of raising capital by selling ownership shares in a company, giving investors partial ownership rather than requiring repayment like a loan. (like dragons den)
9
Q
What tools do Natural England provide to help developments achieve biodiversity net gain (BNG)?
A
Biodiversity Metric - Primary tool which calculates the number of units.
Also provides an offsite marketplace where biodiversity cannot be delivered on site.
10
Q
Tell me about a development appraisal you have used to advise on the acquisition/disposal of a development site
A
11
Q
What is a development yield?
A
Measure of the profitability of a development project. It’s expressed as a percentage and represents the annual return on investment (ROI).
Annual Net Income / Total Dev Costs x 100 = Dev Yield
12
Q
What are purchasers costs?
A
Typically Agency, Legal and Stamp Duty.
13
Q
What are the thresholds for stamp duty?
A
Refer to the HMRC online stamp duty calculator.
Various thresholds for values and tenure.
14
Q
What are the mandatory requirements in an FVA
A
Objectivity, impartiality and reasonableness statement
No incentive fees
Transparency of information
Conflict Checks
Approaches to BLV
Sensitivity Analysis
15
Q
What are the bandings for Stamp Duty?
A
Up to £250,000 = Zero
£250,001 to £925,000 = 5%
£925,001 to £1.5 million) = 10%
The remaining amount (the portion above £1.5 million) = 12%
16
Q
Pollington
How did establish the viability - what measures were used to show the residential development as a requirement?
How was profit established?
A
The site was heavily contaminated, the viability assessment was in place to access whether residential development could subsidise remediation.
We utilised the profit margin established in the local plan viability assessment.
17
Q
Pollington
What was the benchmark land value? How was this assessed?
A
The BLV was assessed on an EUV basis.
In this specific case, we applied a nominal BLV of £1 - this was becasue the site was so contaminated, it was a liability. It required a large sum of money to decontaminate, there was no value and thefefore no premium attaached.
18
Q
Can you talk me through the circularity issue with regards to viability?
A
High land prices not always taking into account planning obligations.
Obligations reduces the developer’s profits.
They then argue that they need to reduce the amount of affordable housing.
This process can inflate land values because developers anticipate that they can get relief from certain obligations by proving a lack of viability, which then justifies higher land prices.
19
Q
How do you calculate the GDV of affordable housing tenures?
A
Affordable Rented – The rental values are based on the local housing allowance for the type of unit in the locality. Then capitalised.
Shared Ownership – Modelled on an initial 40% equity sale with the retained equity being the subject of a rental charge which is equivalent to 2.75% per annum.
We often will apply simple transfer values based on consultation with RPs as to their effective equivalent.
20
Q
FVA Long Whittenham - what was the benchmark land value, how was this assessed?
A
In this particular case we considered both the EUV and the AUV.
The EUV was agricultural use, 10k an acre, we then attempted to establish the premium by running policy compliant RLV. The premium can be calculated by the difference between these.
In this case the RLV was negative, and therefore the scheme couldn’t support AH.
AUV was effectively the same as this as the development was in line with the allocation.
21
Q
Tell me about a development appraisal you have carried out. What was the background to your development appraisal here?
A
I have completed many development appraisals, in particular for FVAs. I have just completed a development appraisal for an FVA for a site in Harrow. This was an assessment to consider whether a new development could contribute affordable housing.
22
Q
What is outlines in the Professional Standard - ‘Valuation of Development Property’?
A
23
Q
How do funding structures impact viability?
A
24
Q
In an appraisal, what elements do you cost for finance costs?
A
Assumed at 100% of the Land and Building Cost - used to determine the borrowing costs over the course of the development period.
25
What is included in a Developer Contributions SPD?
26
What was the CIL cost you included within the appraisal?
£5 Mil
27
What were the S106 costs in this example?
Sports and Recreation
Bus Stop Contribution
SAMM and SANG
Travel Plan Monitoring
Pedestrian Improvement
28
What was the Affordable Housing Requirement?
29
Boswell's - What build costs did you imput here?
30
How did you model build costs within the appraisal?
31
What was your contingency - why was this considered appropriate?
32
Boswell's - What was the number of new dwellings required?
33
Boswell's - What did you include within the appraisal? Talk me through how you did this?
34
Swallowfield - What was the GDV? How did you determine this?
35
Swallowfield - How did you model all of the S106 contributions within the appraisal?
Under Total Costs section of the Bespoke Spreadsheet
36
Swallowfield - What advice did you give in this example?
37
Swallowfield - Why did you come to this conclusion?
38
Talk me through your Case Study example?
39
Case Study - did the site have planning permission? How would your assumptions change if so?
40
How did you calculate the NDA?
41
What was the profit amount you used?
42
What measurement basis do you calculate your bill costs?
GIA basis
43
What are the investment yields for new properties in Old Kent Road area as of 2024?
Creative office £35/ sqf; 6%, 24 months rent free
Light industrial: £30 / sqf; 5.25%; 18 months rent free
B2 / B8: £25 / sqf, 5%, 18 months rent free
Retail: £35, 7% 18 months rent free
Community: £20, 6.75%, 18 months rent free
44
What are the investment yields for existing properties in Old Kent Road area as of 2024?
Light industrial: £16 / sqf; 6%; 24 months rent free
B2 / B8: £15 - £24/ sqf, 6%, 18 months rent free
Retail: £24, 6% 24 months rent free
Community: £18, 7%, 24 months rent free
45
What are the sales values for new builds in Old Kent Road areas?
Northern: £965 / sqf
Southern: £800 - £850 / sqf
Small sites: £775 / sqf
46
Where would you get your build costs from?
BCIS (Building Cost Information Service)
Cost consultant
47
How do you work out your contingency rate?
Typically this range is between 5% and 10% dependent on risk.
48
What is the contingency?
Contingency is there in case of any unpredictable issues that arise such as additional construction costs.
49
How do you reflect for letting void?
This could be reflected in the cash flow at the end of the construction process. Alternatively, you can reflect it within the yield.
50
What are the general expectations of target profit return?
Usually 20% profit on costs for sites without significant risks and 25% for those sites with higher levels of perceived risk. These levels of profit on cost imply a profit on gross development value (GDV) of around 15 to 20%.
51
What are some examples of Total Development Costs (TDC)?
Site preparation
Planning costs
Building costs
Professional fees
Contingency
Marketing Costs & Fees
Calculation of Finance
52
Can you explain Site Preparation costs?
Demolition, remediation works, landfill tax, provision of services, site clearance, levelling and fencing
## Footnote
Obtain a contractors cost plan for these works.
53
Can you explain Building Costs?
Estimated total cost of building works
## Footnote
Sources of building costs include client information, price books, quantity surveyor estimates, and BCIS.
54
Can you explain Professional fees?
10%-15% plus VAT of total construction costs for the professional fees for architects, M&E, consultants, project managers, structural engineers etc.
55
Can you explain Contingency?
5%-10% of construction costs depending upon level of risk and likely movements in building costs.
56
Can you explain Marketing costs and fees?
Assumes a realistic marketing budget (uses evidence/quotes)
Cost of an EPC
NHBC warranty (for residential schemes)
Normal sale fee around 1%-2% GDV
Normal letting fee around 10% of initial annual rent.
57
What are the choices of interest when calculating finance?
SONIA (Sterling Overnight Index Average) which is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight.
## Footnote
e.g 3.6% – 3.8% range during March/April 2025.
58
What are the three elements for finance?
The developer needs to borrow money for:
1. Site purchase (include purchaser’s costs)
2. Total construction and associated costs
3. Holding costs to cover voids until the disposal of the scheme.
59
What finance rates do you use?
Typically 7%; to align with market; informed by colleagues.
60
What is credit rate?
The interest income generated from cash in the bank.
61
What is profit erosion?
The length of time it will take for the development profit to be eroded by holding charges following completion of the scheme.
62
What is Empty property relief?
If you get empty property relief, you do not have to pay business rates on your empty property for 3 months. The relief starts from when the property becomes empty.
63
What are the two main methods of funding for Development Finance?
Debt (Senior mortgage debt, Junior mortgage debt)
Equity (Preferred equity, Common equity).
64
What is Capital Stack?
This defines the priority of rights to income and profits generated by an investment.
65
What information do lenders generally require regarding a property before agreeing to lend?
Development plans
Planning permission
Projected income and expenses (appraisals)
Environmental impact
Contracts.
66
What is overage?
A type of contract where the seller will be paid extra by the buyer if the specified events happen within a specified timescale.
67
What are typical overages?
Sale
Deposition
Change of use
Commercial.
68
What are sale incentives?
Usually initial sale a 5% deposit paid plan, payment of purchaser's legal fee, payment of purchaser's stamp duty land tax liability.
69
What do you know about VAT?
Sale of new residential properties is zero-rated which means developers can recover the VAT on construction costs but do not charge VAT on the sale of new homes.
70
Tell me about a development appraisal you have used to advise on the acquisition/disposal of a development site.
I ran a development appraisal by using the 2020 feasibility study and assuming planning requirement for 50% affordable housing on public sector land.
71
What is purchase's costs in valuation?
These are typically deducted at the end of an investment valuation to calculate Market Value and to allow comparisons with other asset types.
72
What are the thresholds for stamp duty?
SDLT will be charged at the higher rates for additional dwellings:
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 7%
The next £675,000 (the portion from £250,001 to £925,000) 10%
The next £575,000 (the portion above £1.5 million) 17%.
73
What are the mandatory requirements in an FVA?
Objectivity, impartiality and reasonableness statement
Confirmation of instructions and absence of conflicts of interest.
74
Can you talk me through the circularity issue with regards to viability?
Previously in financial viability assessments, the prices paid for land in the market were sometimes used as a justification by developers for being unable to deliver planning policy requirements.
75
How should valuation variation be addressed?
Valuation variation can be addressed in 3 different ways: mandatory sensitivity testing, site-specific assessments, and policies requiring review mechanisms.
76
What is the difference between a development appraisal and a residual valuation?
A Residual Valuation is a valuation of a development based on a deduction of the costs of development from the anticipated proceeds.
A Development Appraisal is a financial appraisal of a development which is normally used to calculate either the residual site value.
77
What are the three different ways to assess development viability?
1. By the use of mandatory sensitivity testing of viability assessments; 2. By the use of site-specific assessments when deemed appropriate; 3. By including policies that require the use of review mechanisms within individual planning agreements.
78
What is the difference between a development appraisal and a residual valuation?
A Residual Valuation is a valuation of a development based on a deduction of the costs of development from the anticipated proceeds. A Development Appraisal is a financial appraisal of a development used to calculate either the residual site value or the residual development profit.
79
How did you derive the sales value for the scheme at Shooters Hill?
I calculated the average sale value per sq ft for different housing sizes using Excel, plotted locations on Google Map, and factored in location attributes. For example, I considered that sale values for the Scheme would be lower due to proximity differences.
80
How did you establish the quantum development for Shooters Hill?
I reviewed planning policy requirements and researched recent developments. I assumed a site coverage ratio of 18%, minimum dwelling sizes, and a mix based on policy requirements. I calculated a capacity of 118 units with 84 houses and 35 apartments.
81
What cost assumptions were input in the appraisal?
Built costs based on BCIS upper quartile; Professional fees - 10% of build costs; Planning fees - £5000 per unit; Marketing fees - 1% of GDV; Sale agent fee - 1% of GDV; Sale legal fee - 0.5% of GDV; Finance costs - 7.5%.
82
What advice did you give regarding the feasibility study in Southwark?
I advised that a loss of 1 market unit would result in a negative residual land value. I recommended a daylight sunlight assessment for adjacent windows and noted that affordable housing grants could increase GDV and reduce finance costs.
83
What approaches did you make when determining the value of the unexpired lease?
I based my advice on development appraisals calculating residual land value. I would use the investment method to calculate the leasehold interest if provided with lease details.
84
What is the typical sale value of Social Rented units to Registered Providers?
Between £150k and £165k per unit.
85
What is development yield (initial)?
The development yield is defined as the stabilised income divided by the total construction cost (excluding interest and fees).
86
What is GDV?
The aggregate market value of the proposed development, assessed on the assumption that the development is complete on the date of valuation.
87
What is hope value?
An element of market value in excess of the existing use value, reflecting the prospect of a more valuable future use.
88
What is return on capital?
The ratio of annual net income to capital derived from analysis of a transaction, expressed as a percentage.
89
What is risk adjusted return?
The discount rate varied to reflect the perceived risk of the development.
90
Define Development Property?
Interest where redevelopment is required to obtain highest and best use or where improvements are being contemplated or are in progress at valuation date.
91
Define Development?
Defined by Town & Country Planning Act 1990: “the carrying out of building, engineering, mining or other operation in, on, over or under land, or the making of any material change in the use of any building or other land.”
92
When would you use a Development Appraisal?
I would use a development appraisal when I needed to calculate the profit of a client’s proposed development, or offer advice on a proposed development.
93
Outline the differences between a residual valuation and a development appraisal?
Residual = finding residual land value, based on market assumptions. Appraisal = assessing the profitability of a scheme and are based on client assumptions and market assumptions.
94
How is residual land value calculated?
GDV - (build costs & profit) = Residual Land Value
95
What are some of the main costs included in a residual?
Build Cost, Professional fees, Statutory costs, Marketing costs, Legal costs, Purchasers costs, Agents fees, Contingency
96
What are the professional fees?
Architect (usually highest proportion of fees), Quantity Surveyor, Structural engineer, Mechanical/electrical engineer, Project manager, C.D. Manager
97
What are the main components of a residual valuation?
GDV, Build Cost, Professional fees, Statutory costs, Marketing costs, Legal costs, Purchasers costs, Agents fees, Contingency, Profit, Residual Land Value, Timescales, Sensitivity analysis
98
What is profit erosion?
The period within which the profit from the development is eroded after completion due to holding charges (i.e. interest charges, building insurance, security and utility charges).
99
What is IRR?
Internal rate of return is a time weighted measure of return. Internal rate of return is the annual rate of growth an investment is expected to generate. The higher the IRR the better. Reduce timescales to improve.
100
What is an S-curve?
The S-curve is the pattern of cash flow which I assume the construction costs follow within my Argus Residual Appraisal. It represents the assumption of how costs are spread across the construction period, with the majority expected during the middle of the construction period. The purpose is to reflect when monies will be spent. The interest is expected to follow the same pattern across this period.
101
What are the limitations to the residual method?
1. The use of assumptions and not real costs. 2. Assumes 100% debt finance which isn’t realistic. 3. Small changes to inputs can have a large impact on profit/residual land value. As per the RICS guidance note: Valuation of Development Property 2019 - you should cross check with the comparable method.
102
What is the basis of measurement used for the calculation of build costs and where would you find an up to date estimate of such costs?
GIA, BCIS (Build Cost Information Service), Consult a building surveyor
103
What is a sensitivity analysis?
It’s a risk analysis technique, used to presented potential outcomes in changes to key variables.
104
What are the three forms of sensitivity analysis?
1. Simple sensitivity analysis of key variables i.e. GDV and construction costs. 2. Scenario analysis - changes scenarios for the development content i.e. changing the phasing of the scheme of its design. 3. Monte Carlo Simulation - using probability theory, using software such as ‘Crystal Ball’.
105
What inputs would you vary in a simple sensitivity analysis?
i.e. upwards and downwards changes in construction costs and sales rates.
106
What outputs would you expect to show in a sensitivity analysis?
1. Effect on land value 2. Effect on profit amount
107
How would you reflect planning requirements within your valuation?
I would enter any S.106 or CIL costs under ‘statutory’ within my valuation. I would also time the cash flow in accordance with the requirements within the CIL liability notice and the S.106 agreement.
108
What interest rate do you typically use?
Typically within my development valuations I assume the project will be 100% debt financed and generate a general market facing finance rate (to allow for comparison purposes and not accounting for developer specific discounts). Typically I apply 6.5% which includes the Bank of England base rate (0.1%) cost of borrowing and arrangement fees.
109
How do you phase affordable housing in a cash flow?
Using the ‘golden brick’ method, to reflect the typical income flow from the RP where usually you would expect a percentage of the receipt to be paid up front, sometimes with an element in the middle of the construction period (depending on the length of development) and the remainder on practical completion.
110
Why is stamp duty not included within your case study?
As the subject comprises garden land, residential SDLT would be applicable. However, as the Government announced on the 8th July 2020, there is a residential SDLT holiday until the 31st March 2021 which means that stamp duty is only paid on the amount above £500,000. Therefore, I did not incorporate stamp duty into my residual appraisal as I have assumed the Borrower will purchase the plots within this period. If this turns out not to be correct, then I reserves the right to amend my valuation accordingly.
111
Why have you used profit on cost?
Reflective of the risks associated with the development and a market facing input I would typical expect given the requirements of developers on similar development projects.
112
When would you increase contingency?
Typically where the development is speculative and in the early stages of planning and therefore higher risk.
113
Why did you include 10% contingency in your case study appraisal?
This was included within the Building Surveyor’s costings. Understood that it was due to the current difficulty at the time obtaining building materials and the delays in obtaining them. Also due to the fact that it was a smaller scheme, so 10% on this scheme does not actually translate to much, in comparison to a larger scheme.
114
What is the likely level of contingency in a development appraisal?
Usually 5% to reflect an average level of risk and to provide a buffer for any unknown costs.
115
What abnormal costs can occur in a development?
1. Ground Contamination. 2. Ground retention needed. 3. Piled foundations being required. 4. Allowances for flooding.
116
What is the likely level of finance cost in a development appraisal?
Typically, I apply 6.5% which includes the Bank of England base rate (0.1%) cost of borrowing and arrangement fees.
117
What is the likely level of professional fees in a development appraisal?
8-10% depending on the stage of the project. VAT is always payable on professional fees.
118
What is the likely level of required profit in a development appraisal?
20% on cost.
119
How would profit vary on a scheme of 100 units and a scheme of 1 unit?
Might expect a higher profit given the higher risk of increased numbers of units.
120
How is BCIS information obtained?
The BCIS obtains its data from tender cost analysis.
121
What does BCIS information exclude?
VAT, Contingencies, Fees, External works and facilitating works.
122
What are some of the weaknesses of BCIS information?
• Often taken from public sector development which has a reduced specification.
• Need to account for exclusions within the data.
• Offers guidance but specific costs of a project can vary.
• Larger housebuilders tend not to submit data, so costs are inflated.
123
What are the three ways you could calculate the finance rate?
1. Bank of England base rate + premium
2. Might be provided in client's loan terms
3. The LIBOR rate + premium
## Footnote
LIBOR is being replaced with SONIA rate by the end of 2021.
124
What are the main reasons a developer needs finance for?
1. Site purchase
2. Construction costs & associated costs
3. Holding costs to cover voids until site is disposed.
125
What are the two main methods of funding?
1. Debt finance - taking a loan
2. Equity finance - selling shares, JV or own money.
126
What is the Loan to Value ratio?
A ratio expressing the value of the loan in proportion to the value of the property. Typically LTVs are 60% of value.
127
What are the forms of finance available?
1. Senior debt - first level of borrowing
2. Mezzanine - additional money required over the LTV.
128
If BCIS was limited, how would you deal with this?
Rebase to the county instead of LPA.
Consult senior colleagues and a building surveyor.
129
What is new build premium?
Due to being brand new and never lived in. Apply 10 - 15%.
130
How do Land Registry record new build prices?
They report on the NET SALES PRICE. Developers need to complete a disclosure of incentives form to Land Registry.
131
What is a typical IRR for a small development site?
30% roughly.
## Footnote
The larger the site, the lower the IRR.
132
Why do you compare land on an open market plot basis?
• Boroughs have different levels of affordable housing.
• It's a more consistent plot rate.
• Simple way of drawing comparison between sites.
133
What do builders offer purchasers?
New builds typically have a warranty of 10 years.
134
What is an NHBC warranty?
NHBC is the UK's leading independent standard-setting body and provider of warranty and insurance for new homes.
Offers:
• First 2 years = defects insurance period.
• Years 3-10 = structural insurance period.
135
What does the finance rate include? Why 6.5%?
1. Base rate of 0.1%
2. Entry fees
3. Exit fees
4. Risk - what the bank wants in return for lending.
136
What is a viability assessment?
Assess whether the new use is more valuable than the existing use. Residual land value is compared to the benchmark.
137
Why can some people borrow at a lower rate?
If they have finance agreements with banks. If the development is lower risk, they may be offered a lower interest rate.
138
When is CIL paid?
Typically at the commencement of development.
139
How do you calculate the finance for borrowing for the site purchase?
On a straight line basis, using compound interest over the length of the development period.
140
How do you calculate the finance for borrowing for the construction?
Assume total construction costs (including fees) over half of the time period, using an S-curve calculation.
141
How do you calculate the finance for borrowing for the holding costs?
On a straight line basis, using compound interest from completion of construction until disposal.
142
How do you calculate a financial viability assessment?
Benchmark Land Value - Residual Value. If it's positive then it's viable, if it's negative then it's unviable.
143
How do you calculate a benchmark land value?
EUV + Premium (typically 10-15%) to incentivise development.
144
Acquisition / disposal cost
The cost associated with the acquisition or disposal of property, usually including legal and agent fees, as well as any purchase or sales taxes.
145
Cash flow
The movement of money by way of income, expenditure and capital receipts and payments during the development.
146
Comparable property transaction
A property used in the valuation process as evidence to support the valuation of another property.
147
Discounted cash flow
A method of valuation explicitly setting out the inflows and outflows of an investment / development.
148
Developer contributions
Obligations often tied to the grant of development permissions providing a benefit to the community, either generally or in a particular locality. They are often mandatory requirements that have to be provided in order to undertake a development.
149
Development appraisal
A financial appraisal of a development. It is normally used to calculate either the residual site value or the residual development profit, but can be used to calculate other outputs.
150
Development profit
The amount by which, on completion or partial completion of a development, the estimated income of a development exceeds the total outlay. This can be expressed in various forms.
151
Development risk
The risk associated with the implementation and completion of a development, including post construction letting and sales.
152
Development yield
The rental income divided by the actual cost incurred in realising the development. This can be based on either current or future estimates of the rental value of the completed development.
153
Development yield (initial)
The development yield calculated over the entire project. It is defined as the stabilised income divided by the total construction cost (exc. interest and fees).
154
Discount rate
The rate of interest selected when calculating the present value of some future cost or benefit.
155
GDV
The aggregate market value of the proposed development, assessed on the special assumption that the development is complete on the date of valuation in the market conditions prevailing on that site.
156
Gross external area
The aggregate external area of a building or footprint, taking each floor into account, measured with reference to the appropriate code of measuring practice.
157
Gross internal area
Measurement of a building on the same basis as GEA but excluding external wall thicknesses. Net sales area is the gross internal area of a residential dwelling subject to certain inclusions and exclusions.
158
Highest and best use
The use of the property that would produce the highest value of the asset. It must be physically possible, financially feasible and legal.
159
Holding cost
The cost involved in owning a site or property, which may include such items as interest on finance used to acquire the asset, maintenance costs, any taxes payable by the owner, etc.
160
Hope value
An element of market value in excess of the existing use value, reflecting the prospect of some more valuable future use.
161
Interest rate
Rate of finance applied in a development appraisal. This can vary within a project for different levels of senior and mezzanine finance.
162
IRR
Rate of interest at which all future project cash flows will be discounted in order that the NPV of those cash flows, including the initial investment, be equal to zero.
163
Market comparison approach
Assessment of appraisal inputs and outputs by reference to comparable transaction evidence, which can include land, values and costs.
164
Market risk
The uncertainty resulting from unknown future changes in the economy and financial and property markets, irrespective of the property being developed.
165
Net development value (NDV)
The gross development value (GDV) minus assumed sale costs.
166
Net internal area (NIA)
The usable space within a building measured to the internal finish of structural, external or party walls but excluding toilets, lift and plant rooms, stairs and lift wells, common entrance halls, lobbies and corridors and car parking areas.
167
NPV
The sum of the discounted values of a net cash flow including all inflows and outflows, where each receipt / payment is discounted to its present value at specified discount rate.
168
NPV method
A method used in discounted cash flow analysis to find the sum of money representing the difference between the present value of all inflows and all outflows of cash associated with the project by discounting each at a specified discount rate.
169
Opportunity cost
The return or benefit forgone by pursuing an alternative action.
170
Optionality
Often referred to as a real option being the right but not the obligation to pursue a particular course of action, i.e. sell, hold/retain or develop a property.
171
Outturn model
A development appraisal that has been adapted to project various inputs, usually both in respect to values and costs.
172
Oversailing licences
Allows a structure (eg. a crane) to overhang public or privately owned property.
173
Pre lets or pre sales
Where a developer of a project, usually prior to implementation, has agreed lettings with occupiers or sales of part or the whole of the development prior to commencement or during development.
174
Profit on cost
The profit of the project expressed as a percentage of total development costs.
175
Profit on value
The profit of the project expressed as a percentage of the project's NDV.
176
Property or project specific risk
The uncertainty attached to the intrinsic development of a site or property in addition to the general market risk.
177
Projections of values and costs
Projecting from a base rent, sales value or cost to reflect estimated outturn levels in an appraisal.
178
Residual land value
The amount remaining once the gross development cost of a project is deducted from its GDV and an appropriate return has been deducted.
179
Sensitivity analysis
A series of calculation resulting from the residual appraisal involving one or more variables (rent, sales, build costs, etc) that are varied to show the different results.
180
Simulation
A simulation considers the probability of outcomes given certain variances applied to key inputs within the financial appraisal through a stochastic process.
181
Speculative developments
Developments that are generally commenced prior to any agreed sales or lettings.
182
Standing investment
Properties that are income producing, usually with a tenant in occupation.
183
Target profit
The level of commercially acceptable return considering the risk of a particular project normally expressed as an individual sum.
184
Target/required return
The level of commercially acceptable return considering the risk of the particular project expressed as a periodic rate of return.
185
Tender price index
Index relating to the level of prices likely to be quoted at a given time by contractors tendering for building work.
186
Total construction cost
All costs of base construction and construction breakdown from project start to the earliest lease start date.
187
Total development cost
The total cost of undertaking a development excluding profit and land.
188
Turnkey development
A type of development in which the property is constructed and fitted out by the landlord/owner to a fully operational standard whereby an operator can commence trading with immediate effect.
189
Vacant possession
The attribute of an empty property, which can legally be exclusively occupied and used by the owner or, on a sale or letting, by the new owner or tenant.
190
Value in alternative use
The market value, or any other appropriate basis, with the special assumption of an alternative use to the existing use or permitted highest and best use.
191
Weighted average cost of capital (WACC)
The minimum return a company should earn in respect of an asset by reference to relative weight of equity and debt within its capital structure.
192
What is the purpose of a development appraisal, and how does it differ from a valuation?
193
Explain the difference between a residual land value appraisal, a viability appraisal, and a commercial investment appraisal.
A residual land value (RLV) appraisal determines the value of land by taking the Gross Development Value (GDV) of the completed scheme and deducting all development costs, including profit. It is primarily a valuation tool used to inform land acquisition decisions.
A viability appraisal assesses whether a scheme is financially deliverable, typically by fixing the land value and calculating the developer’s return on cost or on GDV. It is often used for planning negotiations and to justify affordable housing or S106 contributions.
194
What are the main inputs in a residual land value appraisal?
Gross Development Value (GDV) — derived from sales or income comparables,
Build costs — based on BCIS, QS estimates, or contractor quotes,
Professional fees — often 8–12% of build cost depending on complexity,
Planning contributions — S106, CIL, and affordable housing costs,
Marketing and sales fees, finance costs, and contingency.
The choice and accuracy of each input are critical, as small changes can have a significant effect on residual outcomes.
195
What is Gross Development Value (GDV), and how is it derived?
196
What are the differences between cost, price, value, and worth?
197
What are typical cost components you would include in an appraisal?
198
What is the role of contingency in an appraisal, and how do you determine an appropriate level?
199
Explain how professional fees are usually treated within an appraisal.
200
What is the typical developer’s profit allowance, and how might it vary?
201
How do you approach sensitivity testing, and why is it important?
202
What is a target yield, and how does it influence GDV in a commercial appraisal?
203
How do different funding structures (e.g. equity vs. debt) affect appraisal outcomes?
Equity funding requires higher upfront capital but avoids interest costs, making it less cash-flow-sensitive.
Debt financing introduces interest charges and often requires repayment schedules, reducing profitability.
Joint-venture funding shares both risk and reward, but typically reduces the developer’s return.
Understanding these structures is key, as they influence finance cost assumptions and can make a marginal scheme viable or unviable.
204
What finance costs are typically capitalised, and how are they calculated?
205
How does the RICS professional standard Valuation of Development Property (1st Edition, 2010) guide appraisal methodology?
206
What sources of finance are commonly available for development projects, and how might these be structured?
207
In your Cobham example, how did you calculate and apply the S106 and CIL contributions?
208
How did you obtain or verify build cost data for your projects?
209
How did you model the planning obligations in your appraisal spreadsheet?
210
What assumptions did you make about sales values and build costs, and how did you justify them?
211
How did you treat professional fees, finance, and contingencies in your Boswells Farm appraisal?
212
What percentage contingency did you apply for the listed building works at Boswells Farm, and why?
213
How did you determine the number of enabling dwellings needed to make that scheme viable?
214
For Swallowfield, how did you calculate GDV? Did you use comparables or a developer’s schedule of accommodation?
215
What were the main S106 contributions at Swallowfield, and how did they affect viability?
216
How did you conclude that the Swallowfield scheme was unviable?
The appraisal produced a developer profit below Company’s minimum threshold, indicating the scheme was financially unviable.
I advised that the planning layout and density should be revisited to optimise development quantum and reduce costs.
Following my recommendation, the site was not pursued for acquisition. This demonstrates the importance of using appraisals to guide strategic decision-making, not just to confirm assumptions.
217
What advice did you give to your Director following your Swallowfield appraisal, and how was it used in decision-making?
218
How did you approach the residual land value calculation at Holyport?
219
How did you determine the net developable area (NDA) in your Holyport example?
220
What planning constraints or assumptions did you consider in that appraisal?
221
How did you calculate developer’s profit, and what benchmark did you use (on cost or on value)?
222
How would your assumptions have changed if the Holyport site already had planning permission?
If planning permission existed, I would reduce planning risk allowances, contingencies, and professional fees.
I would include any known planning obligations (S106/CIL) as fixed inputs.
The certainty of planning would likely reduce developer risk and justify a lower profit margin, thereby increasing residual land value.
223
How did you ensure consistency between appraisal inputs (e.g. GDV, costs, and planning obligations)?
224
What software or spreadsheet tools do you use for your appraisals?
225
How would you interpret and advise on the results of a development appraisal?
226
How do you identify which inputs have the greatest influence on viability (sensitivity analysis)?
227
When advising clients, how do you balance commercial viability with planning policy requirements (e.g. affordable housing, CIL)?
228
How would you explain to a landowner why a site is currently unviable, and what options could be explored to improve viability?
229
How do non-market factors (such as sustainability or design quality) affect appraisals?
230
How do you ensure the appraisal remains a live tool throughout the development process, rather than a one-off calculation?
231
Swallowfield – How would you optimise the layout?
Increase development extent
Value engineer design
Plot Substitution
Higher value product
Would need a S73
232
What would happen to your appraisal if build costs increased by 10%?
233
If the client challenged your GDV assumptions, how would you justify them?
234
If market conditions change mid-project, how would you adapt your appraisal?
235
What are the risks of over-reliance on residual land value when acquiring sites?
236
How do you ensure compliance with RICS Valuation – Global Standards (‘Red Book’) when using appraisals in valuation work?
237
Explain why you chose the residual method for the Holyport appraisal rather than a purely market-based approach.
238
Talk me through how you calculated NDA, including the 20% allowance for roads/open space — why 20% and how would you justify that to a Director?
239
How did you determine the assumed build cost of £210/sq ft and what checks did you do to test its reasonableness?
240
Explain how you derived your GDV — what comparables did you use and how did you adjust them for specification and location?
241
The appraisal fixes developer profit at 24% — how does that compare to market practice and how would changing it alter the RLV?
242
Describe the sensitivity analysis you prepared — why select revenue and abnormal cost sensitivities, and how would you expand this testing if pushed?
243
How did you allow for CIL and s106 in the appraisal and why did you index the CIL to site start (assumed August 2027)?
244
How did you check the RLV tone against recent land transactions and what would you do if there was a material inconsistency?
245
What is Residual Land Value?
The amount a developer can **afford to pay** after **accounting for all costs** associated with its development, including construction, fees, and profit margins.
246
Why did you calculate Gross RLV not Net RLV?
Net includes Interest which can be less certain to calculate.
At this early stage, I find it more appropriate to use Gross.
247
How do you calculate maximum development coverage?
Map constraints accurately and double check.
Specialist Consultant input where appropriate
Sensetive design can help extend coverage closer to certain constraints like heritage (conservation areas)
248
Why did you include Land Value in Interim Report?
We have good relationship with Landowner.
To be transparent and also to demonstrate a high quality and diligent service.
Maintain honesty throughout the project
249
What costs are there in an appraisal?
Land Costs
Planning Cost / Professional Fees
Build Costs
Site Specific Costs (Abnormals)
Finance Costs
Sales and Marketing
250
What is Net Development Value?
Equals GDV minus Sales Costs
251
What was the Profit at Cobham?
How did this compare with Company profit target?
30% profit on GDV
252
Swallowfield S106 Obligations
Sports Recreation
Bus Stop
SAMM SANG
Travel Plan
Pedestrian Improvement
253
Build Cost for Boswells?
£300 psqft
254
Swallowfield Profit?
16%
255
Cobham - How much per SQFT for values?
£650 psqft
256
IVS 104?
257
Holyport - What planning constraints did you advise were present when calculating the NDA?
258
Holyport - How did you deem the density of units to be appropriate?
259
Holyport - Did you deduct any other costs from the GDV to establish the land value?
260
Had CALA decided to pursue the project, what revised planning strategy would you have advised?
261
Swallowfield - Anything on Viability / BLV / EUV?
Come to my attention following submission
Confusion with respect to Viability
This in fact had regard to the assessment of the profit achieved.
262
Boswells - Why did you deem it appropriate to refer to a conservation architect and contractor in assessing the build costs?
263
Boswells - How did you arrive at the higher contingency and professional fees?
264
Cobham - What information in the Elmbridge Developer Contributions SPD?
265
Cobham - Can you give me some examples of S106 costs you advised may be likely?
266
Low Professional Fees?
Leverage In house planning, architecture and technical teams, as well as good existing relationships with consultants
RICS APC Planning and Development
flashcards
Decks in class (24)
# Cards
-
ETHICS167
-
CASE STUDY142
-
CLIENT CARE54
-
COMMUNICATION & NEGOTIATION61
-
HEALTH AND SAFTEY73
-
ACCOUNTING42
-
BUSINESS PLANNING29
-
CONFLICT RESOLUTION36
-
DATA MANAGEMENT73
-
DIVERSITY EQUITY & INCLUSION27
-
INCLUSIVE ENVIRONMENTS35
-
SUSTAINABILITY74
-
DEVELOPMENT APPRAISALS266
-
DEVELOPMENT PROJECT BRIEFS71
-
LEGAL REGULATORY51
-
MEASUREMENT55
-
P&D MANAGEMENT130
-
SPATIAL PLANNING87
-
SURVEYING AND MAPPING23
-
VALUATION221
-
MASTERPLANNING AND URBAN DESIGN52
-
HOUSING STRATEGY AND PROVISION138
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DOCUMENTS55
-
UNKNOWN ANSWERS25
