Development Economics (Group Assignment) - Financial appraisal presentation
- 1. DEVELOPMENT ECONOMICS Foo Wai Nni 0328240 Pavithra Ramakrishnarao 0329126 Wan Yee Len 0330764 Yong Kang Seng 0331857 Yong May Sia 0327724 Yong Shi Qi 0327539 Yoong Ai Teng 0328347 PROPOSED DEVELOPMENT OF 26’ X 80’ D/S SHOP/OFFICE LOTS, 22’X 75’ D/S TERRACE HOUSES AND 20’ X 60’ D/S LOW COST HOUSE IN RAWANG, SELANGOR
- 2. Development Process Initiation Carry out market research; Find out about the potential of obtaining necessary statutory planning consent for the change of use. Evaluation Establish the potential for profit in relation to the risk to be borned. Acquisition Legal investigation; Ground investigation; Finance Design and costing Design work with sufficient detail. Permission The developer may apply for an outline application before full approval is obtained. Commitment Satisfy that all the necessary preliminary work has been carried out. Implementation Ensure that the development is completed within the time and budget set out. Let/Manage/ Dispose A decision must be made at what point it would be sensible to let or sell.
- 3. 01 02 03 04 05 Buyer signs the Sales and Purchase Agreement Buyer completes bank payment to the Developer Bank pays progress payment to the Developer as both parties agreed Bank gives progressive payment to the Developer after receiving Architect report Buyer accommodates after Certificate of Completion ‘Sell-then-Build’ Concept Sell before it is built Process of STB concept
- 4. ‘Sell-then-Build’ Concept Advantages of the STB policy Demonstrate saleability of the development Estimate number of houses to be constructed Finances for development Reduce bridging finance required
- 5. Two types of properties: ● Residential houses ● Shop or Office 1F 500sf 2F 400sf Intermediate/End unit 1F 500sf 2F 400sf Corner unit Total unit 62 units Land size 20’ - 40’ x 60’ Built-up area 900 sf D/S Low-cost house Development Plan 1F 770sf 2F 730sf Intermediate/End unit Corner unit Total unit 74 units Land size 22’ - 42’ x 75’ Built-up area 1500 sf D/S Terrace 1F 770sf 2F 730sf Total unit 14 units Land size 26’ - 42’ x 80’ Built-up area 3600sf 5000sf D/S Shop/Office 1F 1650sf 2F 1950sf Intermediate/End unit Corner unit 1F 1850sf 2F 3150sf Site plan Not to scale
- 6. ‘Sell-then-Build’ Concept Financial Appraisal : Residual Method of Valuation Gross Development Value (GDV) 162 units 65% 27% 8% D/S Shop/Office D/S Terrace D/S Low cost Total RM56,618,000
- 7. ‘Sell-then-Build’ Concept Financial Appraisal : Residual Method of Valuation Cost of Development RM6,900,000 RM24,220,000 RM6,000,000 RM6,020,000 RM1,211,000 Total RM44,280,000
- 8. ‘Sell-then-Build’ Concept Financial Appraisal : Residual Method of Valuation Developer’s Profit 21.8% Developer’s Profit GDV Total RM12,340,000
- 9. ‘Sell-then-Build’ Concept Quarterly-Monthly Cash Inflow 2018 2019 2020 RM’000’000
- 10. ‘Sell-then-Build’ Concept Quarterly-Monthly Cash Outflow RM’000’000 2018 2019 2020 2021 1st Moiety 2nd Moiety
- 11. ‘Sell-then-Build’ Concept Quarterly-Yearly Cash Flow 2015 2016 2017 2018 2019 2020 2021 RM’000’000
- 12. 2015 2016 2017 2018 2019 2020 2021 ● Cash deficit period (Q2 2015 - 2017) ● RM6 million cash outflow (construction commencement on Q1 2018) ● RM7.7 million (positive NPV) ● RM13.5 million (net cash flow) RM’000’000 ‘Sell-then-Build’ Concept Net Present Value
- 13. New concept introduced by the Government Complete BTS 0:100 Sell when it is fully completed after the issuance of Certificate of Compliance (CCC) Partial BTS 10:90 Sell before the issuance of Certificate of Compliance (CCC) Feasible and acceptable problem of abandoned housing resolved to the benefit of all parties ‘Build-then-Sell’ Concept
- 14. Lack of support from financial institutions Higher financing cost Decreases supply of housing Lack of interest in the incentives given by Government ‘Build-then-Sell’ Concept Disadvantages of the BTS policy
- 15. ‘Build-then-Sell’ Concept Viability of the project RM’000’000 2015 2016 2017 2018 2019 2020 2021 100% BTS concept Assumption 100% sales achieved Cash Inflow beginning of 2020 Viable Continuous Cash Outflow Decrease in Developer’s Profit
- 16. ‘Build-then-Sell’ Concept Case Study Bandar Utama Transforming from plantation into integrated development Successful - various amenities & landmarks Courageous decision to use BTS concept in the development The Effingham & 2-storey link houses
- 17. Conclusion S E L L - T H E N - B U I L D
- 18. Thank You