6CN019 – GPED

Group Project - Evaluation & Development

Introduction to Property
Development and
Investment
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Topics to be covered:

• Property Development
• Property Investment
• Process of Property Development

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Property Development

• The purchase of land, the construction or

refurbishment of a building and the sale of
the completed building in order to make a
profit.

1 What is property development?

• Is it buying land in order to build houses for
sale?
• Is it buying a parcel of land and building a
shopping centre for sale?
• Is it buying a vacant building in order to
refurbish it, let it and sell it?
• Is it buying a building with a tenant in
occupation and simply collecting the rent?

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2 What is the role of a property
developer?
• The role of a property developer is to make
a profit out of property.
• So in my opinion property development is
any situation where you are adding value to
property.

Property Investment
• An investment is defined as the giving up of a
capital sum now in exchange for benefits to be
received in the future. These will usually take the
form of an income flow and/or capital gain.

Property investment is where a property is

acquired with the main intention of keeping it
and receiving an income and possibly a capital
gain in the future.

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The link between property development
and property investment
• A property developer buys a parcel of land
in order to build an office building and let it to
an occupier who will pay rent for the space
used.

• A property investor purchases the office

building from the property developer after
the office building has been built and let.

The Property Development

Process Explained

• The slides below will examine the various

steps a developer will take in order to
develop a parcel of land for profit.

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1 Find a suitable site
• The type of site you are looking for will depend on
what type of development you specialise in
1. Office
2. Industrial
3. Retail
4. Residential
– Your group are expected to select a site with a
the site in the Supplementary Assessment
Brief

2 Contact the owner

• If the site is not on the market then you will need to contact
the owner by:
1. knocking on the door
2. Sending a letter
3. Contacting the Land Registry

• If all these attempts fail then what do you do?

• If the owner wishes to sell then commence further

investigations and if not leave him with a business card.
STUDENTS MUST NOT CONTACT THE OWNER OF THE SITE

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3 Prepare a sketch of proposed development

• Instruct your architect to prepare a sketch layout of

a potential scheme for the site.

• Why would you do this?

• (At this stage your architect will have had

preliminary discussions with the planners which will
allow him to prepare a scheme which is likely)

4 Obtain comparable evidence

• A comparable is a piece of evidence of a
recent transaction in the market place
• You need to obtain good quality
comparables for the type of scheme you
intend to construct.
• If it was 4 bedroom houses on the land you
wished to build, who would you contact to
obtain comparable evidence?

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5 Calculate the value of the land
• You now have some quality comparables to
work out the Gross Development value of the
scheme
• And your QS has given you some build costs
• And you know the profit you require
• From the above you can calculate an
approximate value for the land using the
residual method of valuation

6 Residual valuation (also known as

developer’s budget)
Sale price of completed development - A
Less Costs of development - B
Less Profit -C

Equals Residue for purchasing land = D

i.e. D = A - B - C

This equation can be re-arranged to calculate profit and

ceiling costs

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7 Make an offer for the land

• You are now in a position to make an offer.

• Once your offer has been accepted you
need to proceed with the purchase of the
site.

8 Method of site purchase

• There are three main methods of
purchasing a site:
1. Conditional contract
2. Option to purchase
3. Unconditional contract

• These methods will be investigated in

further detail in a future lecture.

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9 Planning permission and due
diligence
• Before completing the purchase of the site
you will ideally have:
1. Obtained planning permission for your proposed
scheme.
2. Carried out detailed due diligence to establish
potential risks affecting the development.

10 Purchase site

• Now that planning permission for your

scheme has been obtained and the due
diligence has shown that there are no risks
to your scheme, you can now proceed with
completing the purchase of the land.

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11 Developing the scheme
• As the land has been purchased
1. At the right price
2. With the appropriate planning permission
3. With no risks to the development from detailed
investigations
• You can now proceed with building and selling the
completed scheme
• When the scheme has been sold to a property
investor the development process is over
• Property developer now realises a profit

Tutorial
• Using these slides, reconcile the theory to
your Supplementary Assessment Brief.

• In your groups, establish what sort of

information you are seeking from the site
visit.

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Homework

• Write down ready for tomorrow a list of the

key findings from your selected site
appraisal.

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