Module 10Hypothetical Development ValuationDr Sharon Yam, School of Business(based on material from Dr Nelson Chan and Mr. Peter Wills)
PAGE 3Applications•Residential subdivisions•Conversion of multiple-occupancy property•Commercial, industrial, retail development sites•Medium density residential and dual occupancy development
PAGE 4The Valuation Model Hypothetical Development Equation:V = L + D + F + P + A + SWhere:V = Total valueL = Land costD =Development costF = Finance costP = Profit and riskA = Acquisition costsS = Selling costs
PAGE 5Method in Words
PAGE 6The Hypothetical Development ProcessFrom the previous formula:–Determine the gross realisation of the whole project.–Deduct selling expenses–Deduct the profit and risk amount–Calculate and deduct the development expenses–Calculate and deduct interest on the development expenses, including property taxes.
PAGE 7–Calculate and deduct interest on the land for the whole period of the development.–Calculate and deduct acquisition costs based on the residual value or cost of the land.–The resulting figure is the estimated land value, or the price that you can afford to pay for the land and maintain your profit margin. (All other expenses and charges remaining as calculated).
PAGE 8Factors to consider in the process•Determining the gross realisation–Estimating the lot/unit yield (actual number of lots/units in the development).–Calculating the lot/unit prices – from market evidence•Determining selling expenses–Advertising–Selling agent’s commission–Legal on selling–All fees are negotiable and usually done on a per lot basis.
PAGE 9Development Costs•Usually quoted on a per lot basis.•Items to consider include:–Water and sewerage headworks–Earthworks – drainage and road construction–Underground power, gas and phone–Surveying fees–Planning fees–Council fees–Engineering design and supervision