Expected net annual income on completion: | $5 153 218 |
|
|
Expected net capitalization rate: | 5%pa |
|
|
CAPITALIZE NET ANNUAL INCOME: | $ |
|
|
5153 218 * 100/5 | 103 064 360 |
|
|
Less legal and commission on sale @ 5%: 5% * 103 064 360 | (5153218) |
|
|
NET REALIZATION: | 97 911 142 |
|
|
NET REALIZATION
AFTER PROFIT & RISK @ 20% $97 911 142 * 100/(100+20) |
81 592 618 |
|
|
DEDUCT COSTS TO DEVELOP | |
|
|
Expected period of construction: 36 months | |
|
|
Cost of money:15% pa or 1.25 % per month | |
|
|
Replacement Cost New (RCN): | 22 500 000 |
|
|
Fees: | 2 700 000 |
|
|
Loss of interest on the RCN + Fees 1.25% for 1/2 period (18 months): 22.5% * 25 200 000 |
5 670 000 |
|
|
TOTAL COST TO DEVELOP: |
(30 870 000) |
|
|
NET REALIZATION AFTER PROFIT AND COST TO DEVELOP: |
$50 722 618 |
|
|
LOSS OF INTEREST ON LAND, HOLDING CHARGES & COSTS TO PURCHASE: |
|
|
|
Holding charges @ 1 % for 36 months: 36% Legal on purchase: 1% Stamp duty: 2%
|
TOTAL: 84% |
LAND OR MARKET VALUE $50 722 618 *100/(100+84) |
27 566 640 |
|
say $27 600 000 |
PROOF
The following is the proof of the above method. This follows the development through, step by step leading to a gross realization sufficient to cover profit and risk, cost to develop and loss of interest:
PURCHASE PRICE OF DEVELOPMENT LAND: |
$ 27 566 640 |
|
|
Cost to convert into developer's name and pay holding charges: |
|
|
|
Legal on purchase: 1% Stamp duty: 2% Total: 3% *27 566 640 |
826 999 |
|
|
VALUE IN DEVELOPER'S NAME: |
28 393 639 |
|
|
ADD COST TO DEVELOP |
|
Building: |
22 500 000 |
Fees: |
2 700 000 |
Loss of interest on construction: |
5 670 000 |
|
|
TOTAL: |
30 870 000 |
|
|
Loss of interest/holding charges on land value for 36 months (81%): 81 % *27 566 640 |
22 328 978 |
|
|
TOTAL COST TO BUY LAND AND DEVELOP: |
81 592 618 |
|
|
DEVELOPER'S PROFIT AND RISK ON THE COST TO DEVELOP @ 20% 20% * 81 592 618 |
16 310 524 |
|
|
REQUIRED NET REALIZATION: |
97 903 142 |
|
|
Legal and commission on sale @ 5%: 100/(100 5) * 97 903 142 |
103 055 939 |
|
The difference in the final figure is due to rounding.
HYPOTHETICAL DEVELOPMENT IN GLOBO LAND
The following is an example of the hypothetical development method for residential in globo land. The land can be subdivided into 16 residential lots:
EXPECTED GROSS INCOME: |
$ |
|
|
16 lots @ 84 000 average price: |
1 344 000 |
Less legal and commission on sale @ 5%: 5%*1 344 000: |
(67 200) |
|
|
NET REALIZATION: |
1 276 800 |
|
|
AFTER DEVELOPER'S PROFIT & RISK @ 20% 1 276 800 * 100/(100+20) |
1 064 000 |
|
|
DEDUCT COST TO DEVELOP |
|
|
|
Expected period of construction: 12 months |
|
|
|
Cost of money @ 15%pa or 1.25% per month |
|
|
|
Survey/engineering: |
16 000 |
|
|
Open space contribution: |
51 000 |
Council fees: |
4 000 |
Roads and drainage: |
150 000 |
Electricity: |
21 000 |
Telecom: |
2 000 |
Water: |
53 000 |
Sewerage: |
34 000 |
|
|
TOTAL: |
331 000 |
|
|
Loss of interest for ½ period @ 1.25%: 6 * 1.25 = 7.5% 7.5% * 331 000 |
24 825 |
|
|
TOTAL: |
(355 825) |
|
|
NETREALIZATION AFTER PROFIT & COST TO DEVELOP: |
708 175 |
|
|
LOSS OF INTEREST ON LAND, HOLDING CHARGES & COSTS TO PURCHASE: |
|
|
|
Loss of interest @ 1.25% for 12 months: 15% |
|
|
|
Holding charges @ 1% per month: 12% |
|
|
|
Legal on purchase & stamp duty: |
3.50% |
|
|
TOTAL: |
30.50% |
|
|
LAND OR MARKET VALUE 100/(100+30.5) * 708175 |
542 663 say 543 000 |
PROOF
$
PURCHASE PRICE OF IN GLOBO LAND: |
542 663 |
|
|
Legal on purchase & holding charges @ 3.5%: 3.5% * 542 663 |
18 993 |
|
|
VALUE IN DEVELOPER'S NAME: |
561 656 |
|
|
ADD COST TO DEVELOP |
|
|
|
Construction costs: |
331 000 |
Loss of interest on construction costs: 6 * 1.25% = 7.5% |
24 825 |
|
|
Loss of interest on land: 12 * 1.25% = 15% |
81 399 |
Holding charges @ 1%: |
65120 |
|
|
TOTAL: |
502 344 |
|
|
TOTAL COST TO BUY LAND AND DEVELOP: |
1 064 000 |
|
|
DEVELOPER'S PROFIT AND RISK ON THE COST TO DEVELOP @ 20% 20% * 1 064000 |
212 800 |
|
|
REQUIRED NET REALIZATION: |
1 276 800 |
|
|
REQUIRED GROSS REALIZATION |
|
Legal and commission on sale @ 5%: 100/(100 5) * 276 800 |
1 344 000 |