Pricing Development Land

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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 fk 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!

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Marty Funkhouser said:

£250k profit on £750k investment will attract any developer.

So what do you think the minimum is that attracts them ? Assuming a decent area etc ?

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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.

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Equus said:

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...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%.

Thanks, will bear that in mind.

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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.

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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.