Pricing Development Land
Discussion
We bought an old farmhouse last year with the intention of refurbishing it, house was delisted about fifteen years ago. We've engaged architects to do a refurb scheme but they have also suggested that we look at a new build...mainly driven by a) the cost of the refurb and b) because a new build is not subject to VAT after a certain point it's cheaper c) There is f
k all of genuine period/historical interest left in the house (70's refurbished) apart from the cellar which I intend to save.
To cut a long story short if we go down the new build route we think it will be possible to sell off part of the land and build two houses on it. This will leave us with a new house positioned centrally within the plot.
Currently have a quantity surveyor pricing up the cost of building the two new houses and have a rough idea of what they would sell for. What kind of returns would a developer look for? Let's say both houses cost £250k to build and they would sell for a total of £1mil.
If the development land was say priced at £250k that would leave a £250k profit on £750k of. acquisition//building costs so circa 30% profit. Is that realistic or could it be priced at say a 20% margin or does it need to be 40 % ?!?!
This is SE of England if that matters!
k all of genuine period/historical interest left in the house (70's refurbished) apart from the cellar which I intend to save. To cut a long story short if we go down the new build route we think it will be possible to sell off part of the land and build two houses on it. This will leave us with a new house positioned centrally within the plot.
Currently have a quantity surveyor pricing up the cost of building the two new houses and have a rough idea of what they would sell for. What kind of returns would a developer look for? Let's say both houses cost £250k to build and they would sell for a total of £1mil.
If the development land was say priced at £250k that would leave a £250k profit on £750k of. acquisition//building costs so circa 30% profit. Is that realistic or could it be priced at say a 20% margin or does it need to be 40 % ?!?!
This is SE of England if that matters!
One of the very basic rules of thumb is devolpment is
Land - third
Build costs - third
Profit - third,
A big house builder will look at 25% on the total gross development value as their profit But these are for big sites.
A smaller developer would probably look at the rule of thumb.
Ultimately, if you can find recent sales in your area, look at those, what did they get?
But 25-33% is there or thereabouts for the profit (maybe even 20% if it's perfect and if everyone wants it). Without the full picture it's hard to say,
Find a local chartered surveyor (not an estate agent) for some advice, Dangle the instruction to sell as an incentive...
Land - third
Build costs - third
Profit - third,
A big house builder will look at 25% on the total gross development value as their profit But these are for big sites.
A smaller developer would probably look at the rule of thumb.
Ultimately, if you can find recent sales in your area, look at those, what did they get?
But 25-33% is there or thereabouts for the profit (maybe even 20% if it's perfect and if everyone wants it). Without the full picture it's hard to say,
Find a local chartered surveyor (not an estate agent) for some advice, Dangle the instruction to sell as an incentive...
Edited by Vocal Minority on Monday 14th November 22:59
Edited by Vocal Minority on Monday 14th November 23:02
Cheib said:
So what do you think the minimum is that attracts them ? Assuming a decent area etc ?
AFAIK its 60% of GDV (Gross development Value) which is £1M in your case so £600k would be the value, but its basically down to what you can get a developer to pay really. Some are willing to bet on the market rising some aren't.
Equus said:
If it's only two plots, and it's in the South East of England, sell them as individual plots for self builders... demand is so high that you basically don't need to allow any profit margin for the purchaser.
This is a good option for maximising your return, but the market is not so full of owner occupiers happy to take on a build in my experience.They are out there, but they wont be falling at your feet to buy it.
FrankAbagnale said:
They are out there, but they wont be falling at your feet to buy it.
It depends how you market it, but they're definitely out there! If the plots are of a decent size and in a good location, they won't hang around for long in the SE.Sell the land with outline permissions for two plots, if you can.
Particularly since you suggest that your existing house sits in the middle (so effectively splits them off into separate plots, anyway), I'd reckon this would definitely be your best option.
There is definitely a scarcity of plots within the area....we're right on the edge (literally as the boundary goes through our garden) of the Chilterns AONB so getting planning is not easy. One potential is to JV with the developer or even if I am feeling brave build them ourselves but we'd also be building our house at the same time so cash flow would be an issue.
The selling to a self builder is an interesting angle but we want some control over what gets built as we want to maintain privacy as much as possible and we have views over a valley so there are some height issues we are a bit sensitive to.
The economics are about twice what I suggested. Houses would be worth maybe £1mil when built and would I think cost something like £500k each to build. Getting an initial estimate on the latter from a QS next week.
The selling to a self builder is an interesting angle but we want some control over what gets built as we want to maintain privacy as much as possible and we have views over a valley so there are some height issues we are a bit sensitive to.
The economics are about twice what I suggested. Houses would be worth maybe £1mil when built and would I think cost something like £500k each to build. Getting an initial estimate on the latter from a QS next week.
Cheib said:
...we want to maintain privacy as much as possible and we have views over a valley so there are some height issues we are a bit sensitive to.
These aspects can be written into the contract on the land, regardless of whether you're selling to a self-builder or a developer... and will need to be; otherwise there's nothing stopping a developer from buying your land with full PP and submitting a fresh application to intensify the developement or change the design. I'm in the middle of just such an application at the moment, where a small developer has bought a site with full PP for 3 plots, and by making relatively minor changes with a fresh application I've increased the GDV for them by 30%.
Equus said:
Cheib said:
...we want to maintain privacy as much as possible and we have views over a valley so there are some height issues we are a bit sensitive to.
These aspects can be written into the contract on the land, regardless of whether you're selling to a self-builder or a developer... and will need to be; otherwise there's nothing stopping a developer from buying your land with full PP and submitting a fresh application to intensify the developement or change the design. I'm in the middle of just such an application at the moment, where a small developer has bought a site with full PP for 3 plots, and by making relatively minor changes with a fresh application I've increased the GDV for them by 30%.
Vocal Minority said:
I presume you can place a restrictive covenant to that end on the land at sale?
Yes, absolutely - though you need to be careful how you word it in order that;a) it does its job, whilst
b) it isn't so severe that it puts off prospective purchasers.
It might be possible to use some sort of overage clause, instead of/as well as a restrictive covenant, too. The OP would need to seek legal advice, depending on how he wishes to control the development.
Rangeroverover said:
I've done some deals like yours where the landowner gets a house to his spec in exchange for the land for the other houses. So go to a local developer and say build me this and I will give you he land/planning to build those
Now that's an interesting idea and one I hadn't thought of. It had occurred to me that there would be economies of scale to building three properties at the same time but hadn't thought about structuring a deal like that. Would have to think about how you would actually structure it though...i.e. you wouldn't want them to half build your house having built the other two and sold them.
Made a bit of progress on this. QS has priced the two houses up and they'd cost us circa £850k to build though he thinks we could do it for less. Reckons a developer would build them for £600k.
Engaged a planning consultant etc so will be a while before we can really talk to developers/builders.
Engaged a planning consultant etc so will be a while before we can really talk to developers/builders.
Gassing Station | Homes, Gardens and DIY | Top of Page | What's New | My Stuff