Property Valuation Report For Cardiff Towbridge Construction Essay

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We have received instructions from our client, Mr. Prescott, dated 12 Dec 2010, to assess the following values of a residential development at Wentloog Road in Trowbridge, Cardiff, on behalf of Bloor Homes for accounting purposes. Our client requires us to prepare a valuation to assess the following scenarios:

Gross Development Value of the scheme

Development Cost

Developer's Profit

Sun Available to Pay for Land (Land Value)

We assumed that the instructions and subsequent information contains a full and frank disclosure of all information that is relevant.

Basis and Purpose of Valuation

We have undertaken the "residual" valuation which can be used early in the planning of a simple development scheme. And "Comparison" method is used to assume the development site sales. The valuation has been completed in accordance with the definition of Market Value.

The purpose of the valuation is to predict if the returns are greater than the cost. The difference between the returns and the costs is known as the residual. This residual can be used to determine the value of the land onto which the planned homes will be built. Thus, the valuation, to some extent, informs the potential buyer of what he can afford to pay and still generate adequate profit.

Limitation

Residual method is the main valuation method when calculate the sum available to pay for land in this report. Because it is a derivative of many estimated factors, residual value is highly sensitive to inputs and may vary widely between different developers, depending on the assumption used.

Comparison method is used to assume the development site sales in this report. But by comparing is no more than a rule of thumb used by valuers to estimate the likely open market value of a site. The prices of different property might be different according to their new or old conditions, dimensions, additional features and location.

The value of land for residential development in Cardiff is £2,750,000 per ha of site area. This is a general figure which indicates the cursory average price. No data was found in Trowbridge but we have surmised that the land value is lower than the average price. Consequently, the results might not match the actual situation. Further valuation and consultant should be carried on.

2 Development Proposal

2.1 General Description

The subject property which comprises a rectangular shaped allotment situated on the corner of Wentloog Road and Greenway Road in Trowbridge, Cardiff. The vacant site has a total site area of approximately 6.5 hectares or 65,034 square metres.

The property comprises a cleared vacant parcel of land with no significant features.

The approved development consists of 10 blocks, including 223 houses and subjects to 30% being affordable houses. The development provides approximately 65,034 square metres of vacant site including housing, parking, roads, private courtyards and green space.

Car parking is to be provided for approximately 500 cars.

The scheme will take 2 years to complete.

2.2 Accommodation

223 houses are proposed to be built in this site. There are 4 different types of houses and each of them has 2 room types. The approved development subjects to 30% being affordable houses. The detailed figures are as follow:

Apartment/Flat Number Affordable houses

1 bedroom 27 0

2 bedroom 25 0

Terraced

2 bedroom 40 15

3 bedroom 28 15

Detached house

4 bedroom 18 0

5 bedroom 15 0

Semi detached house

2 bedroom 43 20

3 bedroom 27 17

Total 223 67

2.3 Car Parking

Car parking in this scheme is provided at a ratio of approximately 100% for house and 60% for apartment/flat. On street car parking is the main parking strategy and is to be provided for approximately 450 cars. Private garage is to be provided for about 50 cars.

2.4 Other Improvements

On completion, the scheme is intended to be private courtyards and landscaping with main pathway.

3 Site Investigation

3.1 Location

Location of Area

The subject property, Trowbridge, is located 5.5km east of Cardiff City Centre. It has good transport links to many nearby settlements. More specifically, this area is located on the corner of Wentloog Road and Greenway Road.

The town is only 15 minutes from A48 and 30 minutes from the M4. The Cardiff Airport is about 20 km southwest of the site.

Public transport to the locality is only limited to regular bus services. Bus 49, 50, 30, 44 and 45 are travelling along the surrounding roadways.

Facilities

Although adequate facilities are located near the site, they are unevenly distributed. The facilities mainly gather in the north and west of the site. The following facilities are collected within the 2km coverage.

Source: Google Map

Education

Primary Education (State)

Secondary Education

College

Amenities

Eating and Drinking

Retail Outlets

Local Services

Healthcare Facilities

Sports Facilities

Surrounding Area

Immediate development to the west and north is a mature residential district, whilst surrounding east development is of semi-rural nature. On the other side of the southern boundary, the development comprises freestanding warehouse and office structures, light industrial unit complexes.

3.2 Physical Attributes

Dimensions and Area

The site comprises a rectangular shape allotment with a southern frontage of 205 metres to Wentloog Road, eastern boundary of 307 metres, northern boundary of 193 metres and a western boundary of 335 metres.

The site encompasses a total site area of approximately 6.5 hectares or 65,034 square metres.

Access to the Site

Access to subject property is currently available via three driveways. The first located at the corner of Wentloog Road and Greenway Road. The second access point is at the corner of Llanstephan Road and Greenway Road whilst the third one is located off Greenway Road.

The proposed development provides one access point off Harris Avenue and two off Wentloog Road.

Topography

The site has a gentle slope from the east of the site towards its southwestern boundary, with the lowest point located on the southwestern corner. The altitude difference is approximately 3-4 metres.

One drain, which almost perpendicular to Wentloog Road, crosses the site while another drain coincides with the east boundary. Both drains are about 5 metres wide.

Landscape and Views

The subject property is a vacant parcel of land at the moment, with only grass and some boscage on it.

Hydrology

"Homes and businesses all over Wales are protected from flooding by embankments, walls, sluices and channels, built and maintained by Environment Agency Wales." The following flood map shows that, the subject property "is unlikely to flood except in extreme conditions." "The chance of flooding each year is 0.5% (1 in 200) or less. This takes into account the effect of any flood defences that may be in this area" (www.environment-agency.gov.uk)

Source: www.environment-agency.gov.uk

Utilities

All the existing utilities, such as drainage and gas mains, service for the mature residential areas, but are not provided to the subject land.

It has been assumed that all usual services including gas, electricity, water, mains sewer and telephone will be made available when the development complete.

Other Particulars

Our research indicates that the subject property has benign ground conditions, without geographic faults, underground structures, landfill, made-up ground archaeological remains or coastal erosion. In addition, no contamination was found in this area after inspections.

3.3 Legal Issues

3.4 Planning History and Status

Market Commentary

4.1 National Housing Market

The UK had been experiencing a period of negative growth in Gross Domestic Product, around 1.8% in 2010 and around 2% in 2011. In November UK house prices increased by 4.0% over the year but were slightly lower over the month (-0.1%, seasonally adjusted).

The average house price in the UK in November 2010 was £208,585, whilst the UK figure, excluding London and the South East, was £173,203.

Average house prices were 0.6% lower over the quarter to November, compared to a quarterly increase of 0.9% over the quarter to August (seasonally adjusted).

Average prices increased during the year in England (4.7%) and in Wales (3.0%) but were lower in Northern Ireland (-11.3%) and in Scotland (-2.4%).

Prices paid by first time buyers were 2.4% higher on average than a year earlier whilst prices paid by former owner occupiers increased by 4.6%.

Prices for new properties were 8.9% higher on average than a year earlier whilst prices for pre-owned dwellings increased by 3.7%.

4.2 Local Housing Market

Welsh Housing Market

Over the year to November 2010, the HPI in Wales increased by 3.0%, compared with an annual increase to October 2010 of 9.1%.

Across the UK as a whole, the HPI increased by 4.0% over the year to November 2010, compared with an annual increase to October 2010 of 5.5%.

Comparing November 2010 with October 2010 (not seasonally adjusted), annual house prices decreased in Wales and across the UK as a whole.

The average house price in Wales in November 2010 was £150,374, the second lowest figure amongst the regions of the UK (higher only than the North East).

Cardiff Housing Market

Continuing sterling weakness and improved levels of global trade should provide some stimulus via the UK exporting sector going forward. Survey data also suggest that firms are no longer looking to destock in the large volumes that were so detrimental to GDP in 2009.

Oxford Economics expect Cardiff employment growth to turn negative over 2010-12, especially following the unwinding of public sector jobs as the new government tightens its spending in response to budgetary difficulties. This will also affect support industries, such as business services.

However underlying inflation is still deemed to be subdued, with little in the way of upward wage pressures. This will facilitate the continuation of very low base interest rates over the medium term.

"The opinions of value gathered from valuers for residential building land have shown little change in the year to January 2010 with values staying well below the figures reached in 2007." (The Residential Building Land Market) The value of land for residential development in Cardiff is £2,750,000 per ha of site area.

4.3 Comparable Properties

The following house prices represent a snapshot in time as at the most recent date. Similar houses in the locality are currently selling the following prices:

Apartment/Flat

ID

Housing Type

Sale Piece (£)

Address

Date

1

One bedroom

74,950

High Croft Walk, Newport Road, Rumney

15th Jan 2011

2

One bedroom

69,950

Cemaes Crescent, Rumney, Cardiff

Dec 2010

3

One bedroom

72,500

Mullins Avenue,Rumney,Cardiff

Dec 2010

4

One bedroom

74,950

High Croft Walk, Newport Road, Rumney

Dec 2010

5

One bedroom

93,995

Potters Mews, Greenway Road, Rumney

Dec 2010

6

Two bedroom

100,000

Chulmleigh Close, Cardiff

22nd Jan 2011

7

Two bedroom

84,950

Ball Road, Llanrumney, Cardiff

21st Jan 2011

8

Two bedroom

89,950

Wentloog Close, Rumney Cardiff

Jan 2011

9

Two bedroom

94,950

Cranleigh Rise, Rumney, Cardiff

Jan 2011

10

Two bedroom

99,950

Newport Road, Rumney, Cardiff

Dec 2011

11

Two bedroom

99,950

Ridgeway Road, Rumney, Cardiff

Dec 2011

12

Two bedroom

117,500

The Grove,Rumney,Cardiff

Dec 2011

13

Two bedroom

84,950

Brookfield Drive, St Mellons, Cardiff

16th Oct 2010

Semi-detached house

ID

Housing Type

Sale Piece (£)

Address

Date

1

Two bedroom

129,950

Wentloog Road, Rumney, Cardiff

2

Two bedroom

124,950

Kingfisher Close, St Mellons, Cardiff

13th Apr 2010

3

Two bedroom

134,950

St. Mellons, Cardiff

18th Jul 2010

4

Two bedroom

119,950

St Mellons, Cardiff

26th Jan 2011

5

Two bedroom

128,500

Pennyroyal Close, St. Mellons, Cardiff

6

Two bedroom

134,950

St. Mellons, Cardiff

18th Jul 2010

7

Two bedroom

105,000

St. Mellons, Cardiff

21st May 2010

8

Three bedroom

177,000

Fieldfair Drive, St Mellons, Cardiff

16th Oct 2010

9

Three bedroom

175,000

Hartland Road, Rumney, Cardiff CF3

27th Jul 2010

10

Three bedroom

129,950

Taunton Crescent, Llanrumney, Cardiff

3rd Feb 2011

11

Three bedroom

196,950

Ridgeway Road, Rumney, Cardiff

12

Three bedroom

189,950

Tiverton Drive, Rumney, Cardiff

6th Feb 2011

13

Three bedroom

189,950

New Road, Rumney, Cardiff CF3

14th Jan 2011

14

Three bedroom

139,950

Rumney, Cardiff

5th Feb 2010

15

Three bedroom

158,000

Maes-Y-Crochan, St. Mellons, Cardiff

3rd Jun 2010

16

Three bedroom

159,950

Fieldfare Drive, St Mellons, CARDIFF

11th May 2010

Detached house

ID

Housing Type

Sale Piece (£)

Address

Date

1

Four bedroom

285,000

Ball Road, Llanrumney, Cardiff

7th May 2010

2

Four bedroom

229,950

Sanderling Drive, St Mellons, Cardiff

16th Oct 2010

3

Four bedroom

254,950

Matthysens Way, St Mellons, Cardiff

3rd Sep 2010

4

Four bedroom

210,000

Walwyn Place,St Mellons,Cardiff

14th Jan 2011

5

Four bedroom

214,950

Spencer David Way,St Mellons,Cardiff

29th Oct 2010

6

Four bedroom

229,950

Sanderling Drive, St Mellons, Cardiff

16th Oct 2010

7

Four bedroom

215,000

Harrison Drive, St Mellons, Cardiff

18th Aug 2010

8

Four bedroom

192,950

Spencer David Way, St Mellons, Cardiff

9

Five bedroom

429,950

Clos Padrig, St Mellons, Cardiff

1st Jul 2009

10

Five bedroom

475,000

Clos Padrig, St. Mellons, Cardiff

18th Dec 2010

11

Five bedroom

250,000

Newport Road, Rumney, Cardiff CF3

16th Oct 2010

12

Five bedroom

219,950

Road,Rumney,Cardiff

13

Five bedroom

339,950

Newport Road,Rumney,Cardiff

14

Five bedroom

250,000

Newport Road,Rumney,Cardiff

15

Five bedroom

250,000

Newport Road, Rumney, Cardiff

Terraced house

ID

Housing Type

Sale Piece (£)

Address

Date

1

Two bedroom

104,950

Caradoc Close, St Mellons, Cardiff

Jan 2011

2

Two bedroom

119,950

Silverstone Close, Old St Mellons, Cardiff

16thOct 2010

3

Two bedroom

120,000

Harrison Drive, St. Mellons, Cardiff

15thJan 2011

4

Two bedroom

124,950

Bulrush Close, St. Mellons, Cardiff

5

Two bedroom

117,950

Heritage Park, St. Mellons, Cardiff

6

Two bedroom

119,950

Orchid Close, St. Mellons, Cardiff

7

Two bedroom

103,950

Lodwick Rise, St Mellons, Cardiff

Jan 2011

8

Two bedroom

119,950

Kember Close, St Mellons

Jan 2011

9

Two bedroom

123,000

Bulrush Close, St. Mellons, Cardiff

Jan 2011

10

Three bedroom

139,950

Ffordd Daniel Lewis, St Mellons, Cardiff

2ndDec 2010

11

Three bedroom

114,950

Greenmeadows, Rumney, Cardiff

Jan 2011

12

Three bedroom

114,950

Milverton Road,Llanrumney,Cardiff

Jan 2011

13

Three bedroom

119,950

Clevedon Rd,Llanrumney,Cardiff

Jan 2011

14

Three bedroom

119,950

Treborth Road, Rumney, Cardiff

Jan 2011

15

Three bedroom

132,950

Saffron Drive,St Mellons,Cardiff

Jan 2011

16

Three bedroom

139,950

Chartley Close,St Mellons,Cardiff

Jan 2011

17

Three bedroom

119,950

Treborth Road, Rumney, Cardiff

Jan 2011

Reconciliation of Development Site Sales

The prices of different type houses listed above have great reference value to the development site sales. By using comparative method, the house prices of the subject property in this scheme are estimated as follow.

Apartment/Flat Price

1 bedroom £77,000

2 bedroom £97,000

Terraced

2 bedroom £117,000

3 bedroom £125,000

Detached house

4 bedroom £249,000

5 bedroom £350,000

Semi detached house

2 bedroom £128,000

3 bedroom £168,000

5 Risk Assessment

5.1 SWOT Analysis

Strengths

Available cultural and commercial facilities and public transport service

Good location

Weaknesses

Railway makes noise and cuts off the connection between south and north

Poor road links

Opportunities

College nearby

Mature residential area to the west and north of the site

Threats

Utilities large restriction area

Irregular, disordered and poor quality drains

Few commercial services

5.2 Assumptions

The primary assumptions adopted in the assessment are as follows:

We have assumed that development will be completed in a workmanlike manner and applying good building practice;

The development will be accordance with all Cardiff Council regulations.

The conditions of any approved development consent are complied with to the satisfaction of the consent authority

6 Valuation Methodology

Comparative Method

Property is valued by comparing it directly with other similar ones whose values is known. This method is used to estimate gross development value, where the project involves.

Residual Method

This is a conventional and straightforward technique of evaluation. "Total development costs are deducted from the estimated value of the completed development to establish whether the project produces an adequate rate of return." (David 1998, p. 84) It is an acceptable methodology for valuing land suitable for development which is based on a hypothetical development of the proposed scheme. We examined the development site sales evidence in comparison to the resultant land value as well.

7 Date of Valuation

6 February 2011, based upon the complete inspection of the same date. Because of possible changes in circumstances and market forces which relevant to the subject property, this report can only be regarded as representing our opinion of the property at the date of valuation.

8 Valuation Calculation

Gross Development Value

The GDV of 223 houses is as follow (including 30% being affordable at 80% of market value).

Apartment/Flat Price Number Affordable house Value

1 bedroom £77,000 27 0 £2,079,000

2 bedroom £97,000 25 0 £2,425,000

Terraced

2 bedroom £117,000 40 15 £4,329,000

3 bedroom £125,000 28 15 £3,125,000

Detached house

4 bedroom £249,000 18 0 £4,482,000

5 bedroom £350,000 15 0 £5,250,000

Semi detached house

2 bedroom £128,000 43 20 £4,992,000

3 bedroom £168,000 27 17 £3,965,000

Total 223 67 £30,650,000

Building Cost (including site clearance)

Apartment/Flat Cost (per house) Number Cost

1 bedroom £27,000 27 £729,000

2 bedroom £54,000 25 £1,350,000

Terraced

2 bedroom £42,000 40 £1,680,000

3 bedroom £45,500 28 £1,274,000

Detached house

4 bedroom £80,000 18 £1,440,000

5 bedroom £96,000 15 £1,440,000

Semi detached house

2 bedroom £52,500 43 £2,236,000

3 bedroom £56,000 27 £1,512,000

Total 223 £11,660,000

The fees charged by estate agents and lawyers for the disposal of the completed houses will be 1.5% of GDV (Incurred in the Sale of Completed Scheme):

£30,650,000*1.5%=£460,000

Marketing and advertising (including any interest) will cost 2% of GDV:

£30,650,000*2%=£613,000

Roads and utilities will cost 4% of building cost:

£11,660,000*4%=£466,000

Contingencies will cost 3% of building cost:

£11,660,000*3%=£350,000

Professional Fees will cost 10% of build costs plus contingencies:

(£11,660,000+£350,000)*10%=£1,200,000

Interest on Finance will cost (interest on money borrowed to pay for the construction costs, including building costs, roads and utilities, contingencies, and professional fees) (borrowing interest rates are 10%):

(£11,660,000+£466,000+£350,000+£1,200,000)*0.21*50%=£1,310,000

The cost of planning application fees will be £16,464 plus £84 for every dwelling over 50, subject to a £250,000 maximum:

(223-50)* £84+£16,464=£31,000

Developer's Profit will be 15% of GDV:

30,650,000*15%=£4,597,000

The purchase price of the land (PP)

£2,750,000/Ha * 6.5Ha=£17,875,000

Legal fees will cost 3% of PP:

£17,875,000*3%=£536,000

Interest charged on borrowing the money for the site purchase (borrowing interest rates are 10%)

£17,875,000*(1+10%)²-£17,875,000=£3,754,000

Gross Development Value…………………………………………….… £30,650,000

Development Costs

Building Works (including clearance costs)…………..……….…. £11,660,000

Disposal Fees (Agents and Legal) (1.5%GDV)……...…………...…. £460,000

Marketing and Advertising (2%GDV)…………………………..……£613,000

Roads and Utilities (4% of building cost)……..…………………….. £466,000

Contingencies (3% of building cost)……………………………….…£350,000

Professional Fees ………………………………………............….. £1,200,000

Interest on Finance..............................................................................£1,310,000

Application Fees…………………………………………………....…. £31,000

£16,000,000

Developer's Profit (15%GDV)……………………….…………….……. £4,597,000

£20,687,000

Residual

Legal Fes on Land Purchase…………………………….....……...…£536,000

Interest on Finance to Purchase Land…………………………...…£3,754,000

£25,000,000

Sum Available to Pay for Land (Land Value)

£30,650,000- £25,000,000 £5,650,000

Interest to be paid over two years on a land purchase price of £17,875,000 would be £3,754,000, suggesting that a land value of £17,875,000 could not be offered on the this scheme.

9 Conclusions

10 Recommendations

11 Appendices

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