Land sold for development - what percentage return?
Discussion
This is a how long is a piece of string question, but any pointers welcome.
I owned a piece of agricultural land in an Area of Outstanding Natural Beauty, leased to a local chap. It's in a 'rugged tourist area in the very south of England.' Lets us not mention any county in case the local piskies turn against us.
About ten years ago, I sold the land to Local Chap as there was wasn't much chance of doing anything with it due to the AONB, and also its state as some sort of SSI. However, I added a rider that if the land were sold for development I would receive a good percentage of the sale, though with the majority in Local Chaps favour.
Out of the blue Local Chap calls me, has had a Pre-App approved by the local authority as there is now a need for more housing in the area. Objections over AONB and SSI have been removed by Planning Dept, and there is a strong chance that this will proceed; four cottage-style houses, own parking, with a 50% allocation to Affordable Housing. I have the Planning Advice docs which are at the 'advice given' stage.
My first guess is that four houses with a sea view might sell at say £1,000,000 overall, £250K each, - if it ever goes ahead. I estimate that Local chap will get; what? £300,000 for the land? (About 30%.)
So the question is: 'What rough percentage of the final sale do developers/builders offer land-owners for desirable land with outline planning permission?' or indeed, how do they value it? Site is about 3.5 acres.
Any ball-park estimates welcome for the Local Chap's sale value, as a percentage of the price paid by the developer: Is 30% of final housing sale price anywhere near?
Vielen danke.
I owned a piece of agricultural land in an Area of Outstanding Natural Beauty, leased to a local chap. It's in a 'rugged tourist area in the very south of England.' Lets us not mention any county in case the local piskies turn against us.
About ten years ago, I sold the land to Local Chap as there was wasn't much chance of doing anything with it due to the AONB, and also its state as some sort of SSI. However, I added a rider that if the land were sold for development I would receive a good percentage of the sale, though with the majority in Local Chaps favour.
Out of the blue Local Chap calls me, has had a Pre-App approved by the local authority as there is now a need for more housing in the area. Objections over AONB and SSI have been removed by Planning Dept, and there is a strong chance that this will proceed; four cottage-style houses, own parking, with a 50% allocation to Affordable Housing. I have the Planning Advice docs which are at the 'advice given' stage.
My first guess is that four houses with a sea view might sell at say £1,000,000 overall, £250K each, - if it ever goes ahead. I estimate that Local chap will get; what? £300,000 for the land? (About 30%.)
So the question is: 'What rough percentage of the final sale do developers/builders offer land-owners for desirable land with outline planning permission?' or indeed, how do they value it? Site is about 3.5 acres.
Any ball-park estimates welcome for the Local Chap's sale value, as a percentage of the price paid by the developer: Is 30% of final housing sale price anywhere near?
Vielen danke.
mdianuk said:
What did you put in the contract when sold, as I cannot imagine it was just "I would receive a good percentage of the sale"?
He's after an estimate of how much the land will sell to a developer for, knowing that it will be worth roughly £1m once developed.I guess he already knows the percentage of the land sale price that he'll be getting
The land is valued by taking the Gross Development Value (end sale price) and deducting all the costs. Those costs include :
build cost
planning fees
professional fees - solicitors, architect, project manager, QS, etc
Finance costs
Section 106 payments
Sale costs - agent and solicitors
Land purchase costs - stamp duty and fees
any other costs - environmental, ground surveys, etc
Profit - industry standard is around 20% of total costs
With an end value of £1m, £300,000-£400,000 land value does not seem unreasonable. However, I would expect 3.5 acres to support far more than 4 houses. In the North West land values with resi consent are around £500,000 to £1m per acre. So £100,000 per acre seems cheap.
You should seek independent professional advice (chartered valuation surveyor experienced in residential development), if the landowner is an experienced developer they'll know how to elevate costs to reduce the residual land value and reduce your payout.
build cost
planning fees
professional fees - solicitors, architect, project manager, QS, etc
Finance costs
Section 106 payments
Sale costs - agent and solicitors
Land purchase costs - stamp duty and fees
any other costs - environmental, ground surveys, etc
Profit - industry standard is around 20% of total costs
With an end value of £1m, £300,000-£400,000 land value does not seem unreasonable. However, I would expect 3.5 acres to support far more than 4 houses. In the North West land values with resi consent are around £500,000 to £1m per acre. So £100,000 per acre seems cheap.
You should seek independent professional advice (chartered valuation surveyor experienced in residential development), if the landowner is an experienced developer they'll know how to elevate costs to reduce the residual land value and reduce your payout.
In a way this is a weird question. Usually the land would be sold with a covenant that sets out any overage/increase in value and the mechanism by which it will be calculated.
The first thing we need is to see the contractual clause/covenant. If its some sort of gentlemans agreement then it will be interesting to see how it plays out.
As stated above land values are calculated at a high level by taking the gross development value (value of sales on the finished development), less all costs (excl interest and overhead), and less a 20% developer margin (that's 20% of the gdv).
The costs side is where it can get complex, is there a S106? CIL?, ground conditions? drainage?, special materials etc.
The vale of sales is not a science, its an art based on comparable evidence/
Also, what is to stop the landowner paying out a land value for 4 houses on the site, then going off and getting consent for more?
Op, you really do need specialist advice, but be prepared to pay a fee. Depending on where the site is, I can put you in touch with resi land agents for valuation purposes
The first thing we need is to see the contractual clause/covenant. If its some sort of gentlemans agreement then it will be interesting to see how it plays out.
As stated above land values are calculated at a high level by taking the gross development value (value of sales on the finished development), less all costs (excl interest and overhead), and less a 20% developer margin (that's 20% of the gdv).
The costs side is where it can get complex, is there a S106? CIL?, ground conditions? drainage?, special materials etc.
The vale of sales is not a science, its an art based on comparable evidence/
Also, what is to stop the landowner paying out a land value for 4 houses on the site, then going off and getting consent for more?
Op, you really do need specialist advice, but be prepared to pay a fee. Depending on where the site is, I can put you in touch with resi land agents for valuation purposes
Concerned you didnt agree a overage when you sold the land.
valued on an IRR basis or % of costs. depends on their model.
20% profit on cost is normal, or a 12%-15% IRR for consented Resi.
As its a tiny site i would imagine there will be smaller chaps who will pay more as their costs are less.
C
valued on an IRR basis or % of costs. depends on their model.
20% profit on cost is normal, or a 12%-15% IRR for consented Resi.
As its a tiny site i would imagine there will be smaller chaps who will pay more as their costs are less.
C
I would look for 20% IRR 
Without an development appraisal model, its probably easier for the Op to work on Gross Margin of 20%. If the site is detached houses rather than apartments or terraced houses the IRR will look after itself if GM is 20% (unless there are some silly borrowing costs).
Without an development appraisal model, its probably easier for the Op to work on Gross Margin of 20%. If the site is detached houses rather than apartments or terraced houses the IRR will look after itself if GM is 20% (unless there are some silly borrowing costs).
Gassing Station | Finance | Top of Page | What's New | My Stuff