For a developer, one of the most important viability decisions is made long before a planning application is submitted: how much can you afford to pay for the land?
Getting this wrong can compromise an entire development.
A site may have an attractive location, a credible route to planning permission and apparently strong sales values, but that does not necessarily make it a good acquisition. Once affordable housing, S106 contributions, CIL, abnormal costs, finance, professional fees, construction inflation and an appropriate developer return are properly accounted for, the amount actually available to purchase the land can be very different from the headline figure originally envisaged.
At Bartons Planning & Development Consultancy, we use financial viability and development appraisal at acquisition stage to establish what a site is genuinely worth to a developer before substantial capital is committed.
The objective is simple: understand the commercial position before agreeing the land price, rather than discovering the problem afterwards.
Land Value Should Be the Output – Not the Starting Point
A common acquisition mistake is starting with the landowner's expectation and attempting to make the development appraisal fit around it.
The more disciplined approach is the reverse.
We assess the likely development that can realistically be secured through planning, establish the resulting Gross Development Value (GDV), deduct the full cost of delivering the development and allow an appropriate return for development risk.
The residual amount is what the development can support as land value.
This sounds straightforward, but relatively small movements in individual assumptions can have a major effect on residual land value.
A development appraisal should therefore properly consider:
achievable residential and commercial values;
development density and saleable floorspace;
affordable housing requirements and likely affordable housing values;
S106 and CIL liabilities;
build costs and specification;
abnormal and infrastructure costs;
professional fees;
planning and statutory costs;
development finance;
sales and marketing costs;
programme and sales rates;
contingency; and
an appropriate developer return.
If these matters are underestimated at acquisition stage, the developer effectively absorbs the difference later through reduced profit.
Planning and Viability Need to Be Considered Together
This is where Bartons' approach differs from a simple spreadsheet appraisal.
Planning assumptions drive financial viability.
The number of units, housing mix, density, affordable housing provision, access arrangements, infrastructure requirements and planning obligations can all materially affect the value of a development.
We therefore consider planning potential and development viability together.
For example, paying for land on the assumption that 40 dwellings can be delivered when the planning constraints realistically support 32 can immediately undermine the acquisition.
Equally, a scheme that appears marginal at policy-compliant affordable housing levels may justify further viability analysis before the land price is agreed.
Understanding these issues before exchange provides considerably greater negotiating leverage than trying to resolve them once the site has been acquired.
Testing the Downside Before You Buy
A single development appraisal is rarely enough.
Development involves risk, and an acquisition appraisal should show what happens when assumptions move against the developer.
Bartons therefore undertakes sensitivity testing around the variables that matter most.
What happens if build costs increase?
What if sales values are 5% lower than anticipated?
What if the LPA requires additional infrastructure works?
What if the affordable housing requirement is greater than initially assumed?
What if interest rates or the development programme change?
And, importantly, what combination of those movements causes the development to fall below an acceptable commercial return?
This allows the developer to identify both the target land value and the maximum land price that the project can realistically sustain.
That information can completely change the acquisition strategy.
Turning Viability Into a Negotiating Tool
A robust viability appraisal is not simply an internal financial exercise. It can become an extremely powerful land negotiation tool.
Where the appraisal demonstrates that the vendor's expectation cannot be supported, Bartons can help establish the evidence behind a revised offer.
Rather than simply telling a landowner or agent that the price is too high, the developer can explain why.
It may be that abnormal infrastructure costs are greater than anticipated.
Affordable housing may materially reduce the blended GDV.
The planning capacity of the site may be lower than assumed.
Alternatively, the transaction may need to be restructured through an option, conditional contract, overage arrangement or deferred consideration.
The important point is that the negotiation is being driven by evidence and development economics rather than aspiration.
On larger acquisitions, even a relatively modest adjustment to the assumptions used to calculate land value can represent hundreds of thousands of pounds.
Knowing When to Renegotiate – and When to Walk Away
One of the most valuable conclusions from an acquisition viability assessment can sometimes be that the deal simply does not work at the proposed price.
Developers naturally become invested in opportunities after committing significant time to them. That can make it difficult to abandon a transaction.
A properly constructed development appraisal introduces commercial discipline.
The outcome might be:
Proceed – the development comfortably supports the proposed purchase price.
Reprice – the site works, but only at a lower land value.
Restructure – the site is viable if the transaction terms or payment profile change.
Investigate further – an important planning, infrastructure or cost assumption needs resolving before commitment.
Walk away – the development cannot generate an appropriate return at the vendor's required price.
Walking away from a poor acquisition can save considerably more money than making a marginal scheme work after completion.
How Bartons Can Assist With Development Viability at Acquisition
Bartons combines planning, land and development expertise to provide developers with a commercial assessment of potential acquisitions.
Our work can include:
planning capacity and development potential;
development appraisal and residual land value;
affordable housing and S106 assumptions;
sales value assessment and comparable evidence;
build and abnormal cost assumptions;
CIL and planning obligations;
developer return;
sensitivity and scenario testing;
land offer strategy; and
advice on structuring acquisition terms.
Because we understand both the planning system and development economics, we can identify issues that may be missed where the planning and financial appraisal processes are undertaken separately.
Conclusion: Establish the Right Land Value Before Committing
The profitability of a development is often determined at the point the land is purchased.
Overpaying for land places pressure on every subsequent stage of the project and leaves the developer dependent upon increasing sales values, reduced costs or an improved planning outcome simply to recover the original appraisal.
That is not a development strategy. It is a risk.
Bartons helps developers understand the true financial viability of sites before acquisition, establish a defensible land value and negotiate from an informed commercial position.
If you are considering a development acquisition, speak to Bartons before agreeing the land price. A relatively small investment in viability advice at the beginning of a project can prevent a considerably larger financial problem later.