appendices. As can be seen, Site Value is not an unrestricted Market Value and emphasis is placed upon having regard to the development plan in respect of site specific appraisals. It follows that although Site Value is based on Market Value, it will be risk adjusted so that it would normally be less than current market prices for those sites with a planning permission (and which planning obligations are known). Whilst sales prices do provide an indication of land value, the actual purchase price of the site in question may or may not be material to the assessment of viability. The RICS GN also points out that a developer may make unreasonable / over-optimistic assumptions which means that it could overpay for a site. Therefore prices need to be carefully analysed and adjusted accordingly, but the importance of comparable supporting market evidence is emphasised, as is the case in High Court and Lands Tribunal decisions. The practitioner, as experienced valuers, will be only too well aware, will have regard to the current use value, alternative use value, market / transactional evidence and all material considerations including, of course, planning policy in arriving at Site Value.
The RICS GN recognises that the assessment of Site Value is not straightforward to calculate – that will obviously not be a surprise to most experienced valuers when undertaking development property valuations. What the RICS GN explicitly does, however, is make the link to the market, the level at which a landowner is willing to sell and competitive returns as highlighted by the NPPF in the context of undertaking viability assessments for planning purposes.
The second Site Value definition (Table 2) in respect of area-wide viability assessments essentially expands upon the first, given that in formulating policy (or setting a CIL charge) this has yet to be absorbed by the market and priced accordingly. The relevance of any policy change is of course entirely dependent on the specific circumstances, from de minimus to wholesale change. In accordance with the NPPF, the RICS GN notes that in setting policy, this should not result in a land value level
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below that which a willing landowner would not receive a competitive return. The RICS GN, whilst again making an explicit link between the workings of the property market and establishing a Site Value for area-wide testing, is not prescriptive about how this is achieved, but strongly recommends that the practitioner clearly makes an appropriate judgement in their opinion as to what is reasonable in the circumstances. This should be set out in any assessment.
The LHDG advice is concerned only with area-wide testing in determining the viability of a type of site. It uses a relatively new term for this – “Threshold Land Value” (TLV) which:
“should represent the value at which a typical willing landowner is likely to release land for development, before payment of taxes (such as capital gains tax).”
The LHDG describes in brief the different approaches to TLV currently used including: current use with or without a premium; apportioned percentages of uplift from current use value to residual value; proportion of development value; and comparison with other similar sites (Market Value). It makes the same point as the RICS on policy signals informing future market pricing and considers that market values can still provide a useful “sense check” on TLVs. It however, then recommends that TLV is based on a premium over current use values and credible alternative use values. It caveats this by stating there are exceptions to this approach when it comes to dealing with non-urban sites.
The RICS GN comes down strongly against using “current use value plus a premium” as a singular approach given that it does not reflect the market and the premium (or margin mark-up) is arbitrary and often inconsistently applied in practical application. It is also essentially regressive in respect of the impact on marginally visible sites. This can also result in both over-valuing and under-valuing sites (compared to the RICS Site Value definition) with the consequential impact on planning obligations. In addition, the phraseology used in the LHDG advice around TLV is at times perhaps inconsistent and
surprisingly drafted, particularly when it refers to values being “determined locally”. Why local? Only by local agents? What about experienced national registered valuers? Having regard or not to emerging policy or obligations? At other times the LHDG advice somewhat contradicts itself in addressing different types of sites.
In fairness, the LHDG advice on land value does try hard to refer to the market in order to satisfy the NPPFs reference to “competitive returns”, but nevertheless is ambiguous at times and could be criticised as trying to be “all things to all people”. This uncertainty and consequential lack of clarity was raised at the launch event for the publication.
Although their approaches to arriving at land value differ, both publications provide an enormous amount of helpful guidance. Indeed, I hope my focus in this article on looking at the land value element of both does not detract from areas which provide a fundamental framework for the first time in this important area. The publications can be seen as complementary to one another: with the RICS GN providing a greater technical depth on the valuation elements and viability modelling; and the LHDG advice providing greater insight into area-wide viability in terms of policy and process. Viability and deliverability are going to be key going forward if, as Greg Clark has stated, sustainable development is about positive growth.
Financial Viability in Planning - http://
www.rics.org/site/download_feed. aspx?fileID=11869&fileExtension=PDF
Viability Testing Local Plans - http://
www.nhbc.co.uk/NewsandComment/ Documents/filedownload,47339,en.pdf
THE TERRIER - Summer 2012
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