- interpret outcomes of analysis
- analyse data on subject development property
- determine development value
- record value, analytical approaches used and qualifications required.
HYPOTHETICAL DEVELOPMENT
Hypothetical development is a method of valuation used to value land suitable for development. For example, to find the value of in globo (or en globo) land or the value of a commercial site suitable for redevelopment. In globo and en globo means the same thing; land suitable far subdivision. In globo residential land is also known as accommodation land or greenfields or paddock value.
SITE VALUE
Site value in this context refers to development land that has obsolete structures on it. That is, the developer will demolish the existing structures and develop the land to a higher and better use. The term is commonly used in relation to commercial development land. Because the buildings cannot be economically converted to the highest and best use they have no value. That is, demolition value only as they will be demolished by the developer. This principle was enunciated in Horn's case with regard to the value of rural improvements on land suitable for subdivision:
He can only realize the building value in the market if he is willing to abandon his farming business in order to obtain the higher price. If he claims compensation for disturbance of his farming business, he is saying that he is not willing to abandon his farming business; that is, that he ought to be treated as a man who, but for the compulsory purchase, would have continued to farm the land, and, therefore, could not have realized the building value p399.
And later:
The only way in which he could realize the building value was by giving up farming on the land; the only way in which he could enjoy the farming value was by refraining from realizing its building value. By farming on building land he was, economically speaking, indulging an idiosyncrasy without any economic justification. By claiming for disturbance he is asking to be compensated not for any real pecuniary damage, but for the loss of the opportunity to indulge his idiosyncrasy Horn v Sunderland Corporation (1941) 1 All ER 480, The Valuer, October, 1941,397 at p401.
METHODS OF VALUATION
The direct comparison method is the primary valuation method if sufficient comparable land or site sales are available. However, this ideal situation does not occur very often and therefore, the hypothetical development method is the preferred method. Summation is not used as ultimately, the value of development land depends on utility. That is, value is a function of how large a building(s), home units or lots can be erected or subdivided on the land.
Hypothetical development is a useful initial method in feasibility studies. However, because it uses "rules of thumb" to determine the amount of interest lost during development period, it is not a reliable method where the competing uses show about the same land value.
Where there is a need to "fine tune" the valuation, the discounted cash flow (DCF) (see Appraisal Two) method is preferred. However, where there are a number of competing uses over the land showing a marked difference (for example, all but one are obviously uneconomical) then the hypothetical development method is a reliable method and has the advantage of being sanctioned by the courts.
NOTIONAL DEVELOPMENT OF THE LAND
Hypothetical development is the notional or "paper" development of land. It applies established methods of valuation to the proposed building or subdivision to determine land value. This is carried out for a number of allowable competing land uses. The use that generates the highest land value after an appropriate allowance for profit and risk and the deduction of costs of development, is the highest and best use of the site.
See hypothetical development
SIX CASE STUDIES
The following are six subdivisions that have shown innovation and flair in their development. The studies show how the density of residential subdivisions can be increased using density development and/or innovation.
Costs of development are included except for Kingswood Park and compared to the cost of traditional developments.
RELEVANT COURT CASES
Albany v Comm of Aust (1976) 12 ALR 201
Closer Settlement/Decentralizaflon v Minister (1942)17 LGR 62
Cranbrook Playing Fields v VG (1936)4 The Valuer 246.
Decentralization Ltd v Minister (1942) 7 The Valuer 134
Ford v Minister (1964)18 The Valuer 579
Horn v Sunderland Corporation [1941] 1 All ER 480
Turner & Anor v Minister (1956) 95 CLR 245