Logic for valuing a site with a Development Approval

I'm trying to work out some sound logic for arriving at the value of a site if it was sold with a DA. Would appreciate some input as to whether this logic is sound. Anyone with actual experience putting a value on a DA-approved site?

My reasoning is to work back from estimated development sales ( based on comparables ).

To arrive at the high price ( the maximum the builder would pay )

• My current logic is to estimate total development sales (9 units), deduct demolition, construction costs and any other costs the builder needs to pay to arrive a maximum price the builder would be willing to pay.
  • In the scenario - the only margin the builder is making is their margin on the build cost, in this case approx $283k.

To arrive at the low price ( negotiating room )

• Reduce the sell price by 10% - this would have the affect of providing the builder with additional margin / profit

NB - for the scenario above I would be looking at an after-tax profit of $350k to $420k (although this could reasonably jump into $500k to $570k range assuming 5% to 10% movement in the market given a year or 2)

Build cost is for a low-rise, 9 x 2 bedders, low spec, low-tier builder, no lift, basement parking.

 

What is the dimension of the site?

Today auction in St Alban activity zone. Allowing 4 storey high. 615sqm site (15x40 m).

My estimate the site can be turned into 10-12 apartments.
Sydney investor snaps up St Albans house for $1.81 million at auction

 

Calculate the EMV of the 9 units, $2,790,000
Less development margin @20%, $700,000
Less construction, $1,440,000
Less contributions, $130,000
Less strata, $10,000
Total, $2,280,000

That leaves $510k for you

GST, $250,000
Sales comms, $140,000
Holding costs, $100,000

Leaves only $210,000 for the developer

 

The site is a small one ( 455sqm ) so constrained with what can be done.

Damm - silly error - I forgot the builder's holding costs!!!

 

What figures from above did you total to get 700k development margin?

 

25% of $2,800,000 - not 20%

You also have to know what developers are paying/unit - in this case around $55k-60k/unit.

 

Claim gst margin scheme. The gst bill will be about 70k.

 

@Scott No Mates are these amounts a builder's raw build costs you are typically seeing for low spec 2-bedders?

Seems super low if it includes balcony/private open space, common areas and basement ... ?

 

Just using your figures - you need to speak with agents to find out how much developers are paying per site. Around my way it's over $200k (raw) and selling over $1m - they're not basic or entry level and outstrip the fhbg limit by 100%+

 

No sites with DAs have been sold in the area yet. As it has only rezoned in the last 12-18 months, developers have been snapping them up at regular single-allotment residential prices. That will change soon I hope as the area is a "priority development area" ( somewhat dependent on state & federal governments committing funds for the planned Uni ).

I think I'm looking at price per dwelling in the $330k to $370k range ( today's prices ) and so need raw build costs that are quite low. Can hopefully get some price growth once funding happens.

There is a large local developer that has approved DAs nearby ( issued several years ago and extended ). He would be waiting for govt funding commitments before starting pre-sales.

 

I am not an accountant but we use the margin scheme, I think it works out less than 10%, at least from what developments. I leave this with my accountant, over my head

 

oops I just read this, said the same

 

I assumed that all numbers going in are ex-gst (except for specifically exempt costs eg SD, Levies), so some credits may be applied.

 

You are on the right track, work backwards all costs from your selling point.

In the first instance I would be contacting a re agent in the area to find out as OP mentioned, what builders are paying per lot/market value. Builders would want at least 20% profit, of course their building costs will be less per sqm.

I would also find out whether there is a market for this product, your pool of buyers may be smaller because its 9 units, finance harder to source etc.

Builders will look at the design of the units if they are not good, or they think the product wont sell you will have a hard time selling.

I just sold my 3 townhouse DA to a builder, I have 2 offers in 1 week, ticked the boxes and the builder will be making 25% profit. I achieved slightly higher price than lot values for the area.

MTR

 

yes of course.

 

I'm doing the hard yards now to work out what I need to do. No real comparables yet ( with development sites ). The area will go through quite significant change ( due to the rezoning and it's priority status ). I'm monitoring DAs via planningalerts.org.au to see what other developers will be doing ( although I think they are all waiting ).

Current thought is to get concept plans done soon so I can work out more accurate numbers and run them by builders/developers. Will then kick off the design and planning process once I see the right things starting to happen.

On this site I could also do 3-4 dwellings kind of like row houses but know where near as much profit if selling with a DA, although may be able to develop it myself.

 

That's good

Another important factor is market condition, best time to sell a development project or DA is when the market is strong. Much harder to sell if market slows down, that's when developers get stuck with stock and DA is costly exercise

Mtr

 

A 1200m2 site in Redcliffe submitted for 28 unit about 2 months ago. It's an urban site..

4-8 Sutton Street, Redcliffe

 

Thanks @RetireRich101. There are a few in Scarborough and Margate too. If you notice any for 15m frontage sites and approx 607sqm I'd be particularly interested.