Use the Residual Hypothetical Development Method to determine the purchase price (land value) that should be paid for a real estate development site with the following charteristics:

No of units	35
Average sale price per unit	$ 690,000.00
Cost of Sale	5%
Profit & Risk Rate	17%
Surveying fees	$ 50,000.00
Town Planning Fees	$ 100,000.00
Council Headworks Charges (per unit)	$ 5,000.00
Build Project Manager Fees	$ 150,000.00
Construction Costs (per unit)	$ 300,000.00
Architect/Engineering/Other Fees as a percentage of construction costs	4%
Mortgage Establishment Fee	$ 80,000.00
Development Period (months)	18
Selling Period (months)	18
Debt funding Interest Rate (per annum)	8%
Land Tax to be paid by the developer	$ 25,000.00
Rates to be paid by the developer	$ 25,000.00
Planning approval period (months)	6
Acquisition Costs (percentage of land purchase price)	4%

For the purposes of this exercise do not consider GST.

Assume that the developer is concerned about the development and wants to do a sensitivy analysis based upon a number of variables changing. What price should the developer pay for the land if the Average sale price per unit reduced to $650,000, the Profit & Risk rate increased to 20%, the construction costs increased to $325,000 per unit and the expected development period increased to 24 months?

Once you have created this spreadsheet, see if you can use it for a very simplistic and rough calculation to work out the value of development with the following characteristics:

No of units	10
Average sale price per unit	$ 750,000.00
Cost of Sale	5%
Profit & Risk Rate	15%
Construction Costs (per unit) including all fees and debt establishment costs	$ 450,000.00
Development Period (months)	12
Selling Period (months)	6
Debt funding Interest Rate (per annum)	8%
Land Tax to be paid by the developer	$ 10,000.00
Rates to be paid by the developer	$ 10,000.00
Approval period (months)	3
Acquisition Costs (percentage of land purchase price)	4%