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QUANTITY SURVEYORS
DEVELOPMENT ECONOMICS
NOTES LECTURE 12 : ECONOMIC VIABILITY
Prior To Embarking On Any Development Project.
FEASIBILITY STUDY.
Lending
Institutions
(Financier)
Property
Developer
Desired Return
on Investment
SURE
BASED CRITERIAS
VIABLE
MARKETABLE
FUNDABLE
Ability to Payback
Loan and provide
adequate security
Attract Purchaser
Provide the Confidence
Projects
Commercial
Project
Housing
Retail
Office
Industrial
Social Project
Schools
Bus
Stations
Airports
Hospitals
Parks
Return On
Investment
Evaluation
Methods
Profit
Maximisation
Economic
Study
Benefit
Maximisation
Cost Benefit
Analysis
Treshold
Analsysis
UNDERTAKE STUDY
PLANNING COMPLIANCE
A technique to ensure:
BASED CRITERIAS
Consider
Cost Effectiveness
Minimising
Construction &
Operating Cost
Focus On
Cost Alternatives
1. That the overall benefits of the plan adopted exceed the overall costs to
the Community.
2. Whether there are alternative plans, the most worthwhile is selected.
CBA is technique which seeks to bring greater objectivity into decision-making.
It does this by identifying all the relevant benefits and cost of a particular
scheme (project) and quantifying them in money terms so that each can be
aggregated and then compared
CBA is a practical way of assessing the desirability (Feasibility) of projects
RM Sum of the benefits (Project)
less
Where it is important to take a long view (looking at the impacts in the near future and further)
RM Sum of the cost (Projects)
And a wide view (allowing for effects on many persons, industries, environment and region etc)
RM Surplus (Deficit)
i.e. it implies the enumeration and evaluation of all the relevant costs and benefits.
Social Cost-Benefit Analysis (CBA)
Development Value
Development Expenditure
Development Profit
Dev. Profit
Dev. Margin
IRR
NPV
Land Market
value
PROJECT EVALUATION
MARKET STUDY
PROPERTY VALUATION
DEVELOPMENT COSTING
INVESTMENT ANALYSIS
Return Of Investment
QS
Deduct (Cost)
Net
MAKING
DECISION
PROCEED OR
DO NOT IMPLEMENT
OR OTHER OPTIONS
EXAMPLE
Development of a Housing, Commercial, Industry Project
DEVELOPMENT REVENUE:
RM (Sales)
RM (Rental Income)
RM (Sales and rental income)
RM (Others)
DEVELOPMENT VALUE
DEVELOPMENT COST :
RM (Cost of land)
RM (Associated with development approval)
RM (Consultancy)
DEVELOPMENT EXPENDITURE
RM (Construction)
RM (Development Financing)
RM (Legal , Marketing and management)
RM (Others)
DEVELOPMENT PROFIT
UNIT
QTY
COST
AMOUNT
DEVELOPMENT PERIOD
1
II
EXPENDITURE
Land
Units
100
150,000
15,000,000
Ac
10
100,000
1,000,000
Conversion
250,000
Planning
150,000
Total land Cost
1,400,000
Infrastructure
Earthwork
Ac
10
30,000
300,000
Utilities
Ac
10
50,000
500,000
Building
Units
100
80,000
8,000,000
Consultancy
10
Management
Mth
30
III
UNIT
QTY
8,800,000
800,000
Financing
ASSETS
REVENUE
SS Terrace Hse
20,000
720,000
Say
150,000
12,870,000
2,130,000
PRICE
TOTAL
DEVELOPMENT PERIOD
Residential
Q1
Q2
Q3
Q4
Q10
REVENUE
SS Terrace Hse
Units
ASSETS
II
EXPENDITURE
Land
100
150,000
1,500,000
1,500,000
2,250,000
1,000,000
Conversion
250,000
Planning
150,000
Infrastructure
Earthwork
300,000
Utilities
500,000
Building
8,000,000
8,800,000
Consultancy
800,000
Management
720,000
Financing
150,000
QUARTER
AMOUNT
1,400,000
2
15,000,000
10%
1,500,000
Earthwork
10%
1,500,000
Structural Work
15%
2,250,000
15%
2,250,000
..
10%
1,500,000
15%
2,250,000
10%
1,500,000
..
10%
1,500,000
Vacant Possession
5%
750,000
Total
12,870,000
Financing Required
Cost of Fund
100%
ACCUMULATIVE CURVE
OVER DEVELOPMENT
PERIOD
36 Months
12,000,000