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    Hypothetical Development Approach Calculation

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    Vernon Bacang
    - The document analyzes the hypothetical development of 1.27 hectares of land into residential lots. - It estimates 30 saleable lots that could be sold at 300,000 PHP each over 3 years, for a total revenue of 270 million PHP. - Accounting for deferred sales and an 18% interest rate, the present value of total sales is estimated at 212.6 million PHP. - Expected development costs are 9 million PHP with interest. The balance available for land purchase is estimated at 167.5 million PHP.

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    Hypothetical Development Approach Calculation

    Uploaded by

    Vernon Bacang
    48 views6 pages
    - The document analyzes the hypothetical development of 1.27 hectares of land into residential lots. - It estimates 30 saleable lots that could be sold at 300,000 PHP each over 3 years, for a total revenue of 270 million PHP. - Accounting for deferred sales and an 18% interest rate, the present value of total sales is estimated at 212.6 million PHP. - Expected development costs are 9 million PHP with interest. The balance available for land purchase is estimated at 167.5 million PHP.

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    - The document analyzes the hypothetical development of 1.27 hectares of land into residential lots. - It estimates 30 saleable lots that could be sold at 300,000 PHP each over 3 years, for a total revenue of 270 million PHP. - Accounting for deferred sales and an 18% interest rate, the present value of total sales is estimated at 212.6 million PHP. - Expected development costs are 9 million PHP with interest. The balance available for land purchase is estimated at 167.5 million PHP.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    48 views6 pages

    Hypothetical Development Approach Calculation

    Uploaded by

    Vernon Bacang
    - The document analyzes the hypothetical development of 1.27 hectares of land into residential lots. - It estimates 30 saleable lots that could be sold at 300,000 PHP each over 3 years, for a total revenue of 270 million PHP. - Accounting for deferred sales and an 18% interest rate, the present value of total sales is estimated at 212.6 million PHP. - Expected development costs are 9 million PHP with interest. The balance available for land purchase is estimated at 167.5 million PHP.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 6

    HYPOTHETICAL DEVELOPMENT APPROACH

    Total Land Area = 1.27 ha.


    Less: Area for Roads & Open Space (30%) = 0.38 ha.
    Net Area = 0.89 ha.

    Assuming the lot area is 300m2 , the total


    number of saleable lots would be:

    There is 10,000 sqm / hectare


    Lot area Assumed , 300 sqm
    33

    Lots 29.58 lots


    say , 30.00 lots
    Total Projected Sales 30,000 per sqm
    Lot area Assumed , 300
    270,000,000.00

    The selling period is expected to be three years. The revenue from lot sales needs to be adjusted for the three-year
    selling period (three-year absorption rate). Lot sales can be expected to occur approximately evenly during each
    year of the sale period. The anticipated revenue must be adjusted for the deferral time by calculating the present
    value of sales for each year. Thus, adopt the mid-point of each year for the deferral calculation (approximately half
    the sales will occur before the mid-point, and half after the mid-point in each year). Sales shall commence soon
    after purchase by the developer, and some parcels are bought off the plan.

    To compute the Capitalization Rate (bank’s lending interest of 15% including owner’s equity
    or bridge financing at 24%):

    Bank’s Interest (70% x 15%) 70% 15% =


    Equity (30% x 24%) 30% 24% =
    Capitalization Rate

    Year
    1
    Expected Annual Sales 270,000,000.00 / 3

    Deffered 6 months @ 18% per annum 82,851,715.61

    Year
    2
    Expected Annual Sales 270,000,000.00 / 3
    Deffered 1 1/2 years @ 18% per annum 70,213,318.31

    Year
    3
    Expected Annual Sales 270,000,000.00 / 3

    Deffered 2 1/2 years @ 18% per annum 59,502,812.13

    Present Value of Total Sales (PV) 212,567,846.06

    Allowance for developer’s profit and risk of


    undertaking this development
    equals 20%

    Less : PV / 1.20 * 0.2 35,427,974.34

    Sub Total 177,139,871.71

    Expected development costs: design, fees, construction (over 1 year) at Php1,000/sqm (Based on developers’
    (experience) estimate); Interest on Development Costs (six months at 15% pa. interest)

    30 lots @ 300 sqm lot x Php 1,000 per sqm 9,000,000.00 30.00

    Add : 15% interest 675,000.00

    Sub Total 9,675,000.00

    (Note: Development costs spread across a whole year; Interest calculation based on borrowings and repayment
    over one year; Average debt would be the full amount for six months; Income from early sales would pay some
    development costs but developer would shoulder some borrowings)

    Balance Available (for land purchase & interest on land) ( I ) 167,464,871.71

    (Note: Land interest calculated on the basis of paying all construction costs first, then land and interest costs; Sales
    income available for land payment after construction costs met; Payment of construction cost and interest will
    take 0.1075/year. (Php9,675,000.00/Php90,000,000 = 0.1075)

    9,675,000.00
    90,000,000.00

    Payment of construction cost and interest will 0.11


    take
    N= 3.00

    N= 3 - 0.65

    N= 2.89

    To compute for present value of the land

    Land Interest =
    1 + {(15% p.a. x 0.1075) + [15% p.a. x (2.35 years/2)]}

    1 (15% p.a. x 0.1075) [15% p.a. x (2.35 years/2)]

    1 0.016125 0.17625

    Land Interest ( R ) 1.1924

    Therefore, the present value of land is: (V = I / R)

    167,464,871.71
    1.1924

    V= 140,446,480.10
    OACH

    13,820
    1,142.92
    0.380312 12,677.08 10000
    1000 1.267708

    12677080

    sqm / hectare 0.89


    10000
    300

    29.66667 10000000 14000000


    33333.3333 300
    46666.67

    ted for the three-year


    evenly during each
    culating the present
    n (approximately half
    l commence soon

    0.105
    0.072
    0.177 or 18%

    = 90,000,000.00

    = 90,000,000.00
    = 90,000,000.00

    d on developers’

    300 1000

    gs and repayment
    s would pay some

    d interest costs; Sales


    t and interest will

    0.1075
    [15% p.a. x (2.35 years/2)]

    0.17625

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