Component 2 – Residual Land Value. 2.1. The Valuer shall estimate the value of the land under the planning proposal using the residual land valuation (RLV) method. The preferred method for calculating the RLV is discounted cash flow modelling using proprietary software like Estate Master DF or similar. A simple developer’s profit model may be acceptable for small-scale single-staged developments.
2.2. The assumptions in the RLV calculations must be reasonable and based on industry averages.
2.3. If there are no listed or asking prices then the end sale values shall be estimated by the Valuer based on comparable market evidence.
2.4. Market evidence should include any recent pre-sales in the building and/or recent sales and pre-sales of comparable apartments in other buildings in the locality.
2.5. Estimated construction costs must be supported by a Quantity Surveyor’s report. Construction contingency should be no greater than 5%. Soft costs may be included such as design costs, application fees, authority fees, development management, marketing and advertising and finance establishment costs.
2.6. In calculating the RLV the project start date should assume the land is zoned appropriately (i.e. the zone that is being proposed).
2.7. The RLV should exclude any discounting during the rezoning period as the payment under the VPA will not be made until occupation certificate. A typical development program should be assumed that allows reasonable time for development approval, certification and construction. Council will not accept a program that appears conservative or pessimistic. The table below provides a suggested range of project lives for a single stage project. Any significant departure in project life requires supporting evidence. Construction Cost Approvals and Documentation (months) Construction (months) Under $20m 8-9 10-14 $20m to $40m 9-11 14-17 Above $40m 10-12 18-20
2.8. It is recognised that these timeframes can vary and are impacted by building height and number of basement levels.
2.9. For a short single staged development a developer’s profit or “back of envelope” method rather than a cash flow model may be acceptable. Using this method the RLV will be derived from the target profit/risk margin. If this method is used the interest should be calculated as follows: Interest Cost = (Total Project Costs excluding land & GST) X (Interest Rate / 12) X (Months of Construction) X 50%.
