Property Valuation, 3rd Edition

Chapter 10Valuation of Development Property

10.1 Introduction

A development property is defined in the International Valuation Standards (IVS 410) as a property ‘where redevelopment is required to achieve the optimum use, or where improvements are either being contemplated or are in progress at the valuation date’. This includes undeveloped land, the redevelopment of previously developed land for the same or alternative uses and the improvement and alteration of existing buildings.

A development property is, therefore, a hypothetical construct because it does not exist at the time of the valuation. It cannot be inspected, measured, surveyed; it can only be imagined. The definition states that the development should be to the optimum use, so that provides a steer, but valuers are likely to vary in their opinions of the optimum use when it is precisely defined in the valuation. Therefore, sensitivity analysis and scenario modelling may form part of the valuation of development property.

As with the valuation of investment property, valuations of development property can be undertaken using various valuation bases, primarily market value and investment value.

10.2 Market valuation of development property

The market value of a property will reflect its highest and best (or optimum) use, and this includes alternative uses as well as the existing use. These alternative uses must be possible, legally permissible, and financially feasible. As such, they can include development or ...