Viability and Development Economics in the Real Estate Sector
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VIABILITY
The Developer’s Perspective
Ian Storey – Projects Director
•
“You’re only doing this to make money!”
•
Site identification
•
Site acquisition
Options
Conditional Contracts
Purchase
•
Promotion of Sites
(Up to and including Planning Applications/Appeals)
•
Risk
PROFIT
BUILD
COSTS
S106
P
L
A
N
N
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A
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LAND
MINIMUM LAND
VALUE
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V
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X
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R
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F
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!
!
!
!
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E
We’ll have some of that!
•
PGS – capture a proportion of increase in land value
Alternatives?
•
Code for Sustainable Homes
•
Affordable Housing
•
Wider infrastructure requirements – CIL
Outcome – seems that almost everyone is happy
Cake is getting bigger, everyone still getting their fair share
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S
V
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BUILD
COSTS
S106
P
L
A
N
N
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LAND
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V
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PROFIT
PRICES DOWN
BY 20%
200
7
Pos
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200
7
Comparison –
past v present
BUILD
COSTS
S106
P
L
A
N
N
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N
G
LAND
S
A
L
E
S
V
A
L
U
E
PROFIT
MINIMUM LAND
VALUE
BUILD
COSTS
S106
P
L
A
N
N
I
N
G
LAND
PROFIT
Delivering
Viability
Para 173: sustainable; competitive returns (landowner/developer).
Para 174: local standards; national standards; economic cycle.
Para 175: CIL should support and incentivise.
Para 176: necessary safeguards.
Para 177: planned infrastructure.
Developer profits are under pressure because of a drop in sales values
Land owners still require a return on their land otherwise they won’t release
it for development
Regulatory requirements need to be balanced to ensure delivery
However:
There remains strong underlying demand for new homes
Obtaining permission is (arguably) becoming more difficult
A
n
d
F
i
n
a
l
l
y
The Golden rules of viability testing:
•
Transparency
•
Evidence based
•
Simple
•
Guidance
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pas@local.gov.uk
Web
www.pas.gov.uk
Phone
020 7664 3187
Simon Drummond-Hay
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Phone
015242 76205 / 07989 975 977
David Carlisle
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Phone
020 7821 4194 / 07827353558
• Set out objectives for the day and explain that after workshop 1 we can tailor the day to the LPAs needs
• Many consultants involved in the development industry are paid by developers and so will have a view on viability
• Today we shall discuss the trade off of different policy aspirations– CIL/CfSH and BREEAM/s106/Affordable Housing
• For the purposes of this workshop we shall talk mainly about housing as it’s easier for a mixed audience to understand
Explore crucial aspects of viability and development economics in real estate, including profit-making strategies, site identification, risk management, land valuation, and sustainable practices discussed in a seminar featuring guest speaker Ian Storey from Storey Homes. The event delves into the importance of profit in development projects, residual land valuation, capturing extra profit, comparison of past and present market dynamics, and delivering viability in line with NPPF/CIL guidelines.
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Presentation Transcript
Viability and development economics 5th and 6th June 2013 www.pas.gov.uk
VIABILITY The Developer s Perspective Ian Storey Projects Director
SHOULD A DEVELOPER MAKE A PROFIT? You re only doing this to make money!
WHY DO WE NEED TO MAKE A PROFIT? Site identification Site acquisition Options Conditional Contracts Purchase Promotion of Sites (Up to and including Planning Applications/Appeals) Risk
RESIDUAL LAND VALUATION PROFIT S A L E S BUILD COSTS V A L U E S106 MINIMUM LAND VALUE PLANNING LAND
EXTRA PROFIT FANTASTIC !!!! SALES VALUE TIME
EXTRA PROFIT? We ll have some of that! PGS capture a proportion of increase in land value Alternatives? Code for Sustainable Homes Affordable Housing Wider infrastructure requirements CIL Outcome seems that almost everyone is happy Cake is getting bigger, everyone still getting their fair share
Comparison past v present PRICES DOWN BY 20% PROFIT S A L E S S A L E S BUILD COSTS V A L U E V A L U E S106 PLANNING LAND 200 Pos
Delivering Viability PROFIT S A L E S PROFIT BUILD COSTS BUILD COSTS PLANNING V A L U E MINIMUM LAND VALUE S106 PLANNING S106 LAND LAND
NPPF/CIL Para 173: sustainable; competitive returns (landowner/developer). Para 174: local standards; national standards; economic cycle. Para 175: CIL should support and incentivise. Para 176: necessary safeguards. Para 177: planned infrastructure.
CONCLUSIONS Developer profits are under pressure because of a drop in sales values Land owners still require a return on their land otherwise they won t release it for development Regulatory requirements need to be balanced to ensure delivery However: There remains strong underlying demand for new homes Obtaining permission is (arguably) becoming more difficult
And Finally The Golden rules of viability testing: Transparency Evidence based Simple Guidance
Contact us Email gilian.macinnes@local.gov.uk pas@local.gov.uk Web www.pas.gov.uk Phone 020 7664 3187 Simon Drummond-Hay Email simon@drummond-hay.co.uk Phone 015242 76205 / 07989 975 977 David Carlisle Email david.a.carlisle@urs.com Phone 020 7821 4194 / 07827353558
