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Development Site Valuations
A development site feasibility valuation assesses the potential scenarios and challenges that may impact the valuation due to future changes in circumstances. This can introduce additional uncertainty. MPV has extensive experience in development site valuations, including mortgage valuations for these sites.
Whether your land is zoned R2, R3, R4, B4, B5, B6 Enterprise Corridor, or other categories, our expertise will guide you correctly. Different councils have unique objectives and regulations for each zone, including floor space ratios and other allowances, which can vary even for the same zoning.
Key Aspects of Development Site Valuation
The expectation of a change in circumstances for a development property is integral to its market value, as outlined in paragraph RICS 4.4 of VPS 4. Prospective buyers often factor in potential future developments or mergers, impacting the property's market value.
Valuation Approaches
According to IVS 105, there are three main approaches to valuation:
Market Approach
Income Approach
Cost Approach
Each approach includes various detailed methods. The choice of approach depends on the valuation's required basis, purpose, and specific circumstances.
For development properties, two primary valuation methods are used:
Market Comparison Approach
Residual Method (see IVS 410 paragraph 40.1)
Best practice recommends using multiple methods to assess the value accurately.
Investment Value Basis
When assumptions in a financial appraisal or valuation pertain to a specific entity or client, the investment value basis of valuation may be appropriate (IVS 104 paragraphs 60.1 and 60.2 and VPS 4 section 6).
Development Feasibility
A feasibility study determines the viability of a proposed initiative or development. It evaluates whether the project is technically feasible within the estimated cost and profitable. A crucial concept in property development financial feasibility is ensuring you don’t overpay for land.
Residual Land Value
Understanding the Residual Value of Land is vital in financial feasibility. While costs like professional fees, construction, permits, and selling expenses are constant, the land and end sale value are variable. Overpaying for land does not guarantee a higher return on the developed product.
Market Value and Assumptions
Market value, or market value subject to assumptions, is often the appropriate basis for valuation. This considers optimum development, current, and prospective economic and planning conditions. The valuation report helps reduce risks, forecast investment, manage timelines, and address legal and regulatory approvals.