Commercial valuation of property is the prime requirement for investments. Real estate values depend on many elements, such as the present cost of the land, taxation on the lad, the depreciation rates, and others. It is essential that a feasibility analysis be conducted first before the land is invested into. Given this context this report basically attempts to do a feasibility analysis for a property using the Estate Master Feasibility analysis tool. A number of inputs are given based on a case scenario for property. The report attempts to evaluate and critically discusses the real world scenario presented by the Estate master for each of these sets of inputs. A feasibility analysis based on commercial valuation methodology is carried out first, followed by a valuation of the site as is. The residual value is calculated here. The report then calculates the project returns based on the residual values using the Estate Master and in the second part of the report, sensitivity and risks analysis are covered.

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Property Investment and evaluation
University
Student

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Executive Summary
Commercial valuation of property is the prime requirement for investments. Real estate
values depend on many elements, such as the present cost of the land, taxation on the lad, the
depreciation rates, and others. It is essential that a feasibility analysis be conducted first before
the land is invested into. Given this context this report basically attempts to do a feasibility
analysis for a property using the Estate Master Feasibility analysis tool. A number of inputs are
given based on a case scenario for property. The report attempts to evaluate and critically
discusses the real world scenario presented by the Estate master for each of these sets of inputs.
A feasibility analysis based on commercial valuation methodology is carried out first, followed
by a valuation of the site as is. The residual value is calculated here. The report then calculates
the project returns based on the residual values using the Estate Master and in the second part of
the report, sensitivity and risks analysis are covered.

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Table of Contents
EXECUTIVE SUMMARY...........................................................................................................................................2
TABLE OF CONTENTS..............................................................................................................................................3
INTRODUCTION .....................................................................................................................................................4
PROPERTY DETAILS................................................................................................................................................4
ASSUMPTIONS AND OUTGOINGS ..........................................................................................................................4
PART 1 ...................................................................................................................................................................5
PART1 A .....................................................................................................................................................................5
PART 1 B...................................................................................................................................................................13
PART 2 .................................................................................................................................................................13
2.1. PROPERTY VALUATION RISKS ...................................................................................................................................13
1.2 SENSITIVITY ANALYSIS ..............................................................................................................................................14
1.3. SCENARIO ANALYSIS...............................................................................................................................................16
1.4. ONE WAY WHAT IF ANALYSIS AND TWO WAY WHAT IF ANALYSIS................................................................18
CONCLUSION .......................................................................................................................................................21
REFERENCES:........................................................................................................................................................22

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Introduction
Real estate is highly growing sector and increasing costs of the property have made this
industry to evaluate the valuation of the property for future investments. A property valuation
produced as a report assess current value of a property in an open and cutthroat real estate
market, find out the rates of value of the assets, acquaints individual with compensations. Hence,
property valuation is conducted to benefit both seller and buyer and assists companies and
individual in valuation dealings. This project focuses on the valuation of the property for
investment in Australia.
Property Details
The development site considered is that of the property at 342-346 Main Road on Cardiff,
NSW. Asking price on property is $11,000,000. Once developed the property will be 12 x one-
bedroom units 18 x two-bedroom units and 12 x three-bedroom units. Market price for these
bedroom units are one-bedroom without views $200,000, one-bedroom with views $220,000,
two bedroom units without views $260,000, two bedroom with views $290,000, three bedroom
units without views $320,000, and three bedroom units with views $350,000. Other points to be
considered in the overall evaluation are that there is about 2,500 square metres of ground floor
showroom space and 1,500 square metres of first floor office space. There is also parking space.
These spaces will also bring in rentals that would need to be considered in the total revenue after
property development. The Showroom space rentals are done at the rate of $350 per square metre
per annum nett and the first floor office space is let at $250 per square metre per annum nett. In
the market, similar property has shown yields in the range of 7.5% to 8.0%. Some older
commercial buildings have even drawn yield in the range of 9.5% to 10%.
Assumptions and Outgoings
Assumptions made are that almost 50 percent of commercial space has been pre-sold
even before property development. In terms of the outgoing per annum, the council rates are
around $5,000, the water rate is $4,000, the land tax is $6,000, the repairs and maintenance
charges per annum is $12,000 and property insurance per annum is $4,000, making it a total of
$31,000 in total tenancy outgoings per annum.

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PART 1
The values on completion of the project are calculated based on the assumptions and
outgoings actual values for the property. The market rates that are presented for the 12 x one-
bedroom units 18 x two-bedroom units and 12 x three-bedroom units are taken into account here.
Commercial valuation methodology best principles have been made use of here. The expected selling
price according to market values has been stated above. However in reality, the expected selling price
would be lesser or more per unit based on who wants to own the commercial space or the bedroom
units. A buyer who wants the commercial value right now and is not willing to renegotiate might
book it at an early bird price or might be willing to pay anything to book the property. On the other
hand a person who is just scanning properties might want to negotiate. Herein lies the differences.
Although there are fixed market prices at present, how the property is handled could cause difference
in the profit.
PART1 A
Valuation is a step by step process. Primarily the property has been identified. Secondly
general data has been collected on the property; especially with the type of land use that the property
is to be intended for and also the money in sales values that would be generated. The Cost Approach
to value works on the principle of substitution. The person will pay only what is required to build a
similar substitute. Reproduction, replacement, directs and indirect costs would need to be considered
here. The methods used for cost estimation are the comparative, quantity survey and the unit-in place.
The Sales Comparison or the Market Approach is another method (Rowland, 1991). This is one in
which the sales data of similar property unit would be used to understand the value. Some elements
of comparison normally used are that of the square footage, the number of units, the number of
bedrooms etc (Rowland, 1991). The income approach is one of the main valuation approaches where
the income generated from the property is being used to understand its value in investments. The
income approach is also called income capitalization. The current market value of the property is
calculated based on the indications on its future net worth. So if a property is sold at a said price in
future or earns in rents, then this net worth in future would be used to estimate its current price. An
investor who conducted feasibility analysis on the property would be willing to pay and purchase the
property in order to receive the projected future income stream.

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FIGURE 1: MAIN INPUTS
FIGURE 2: TENANTS INPUTS
Using the EstateMaster Development Feasibility analysis was convenient for calculating
the residual land value. The inputs for tenancy and all other parameters were added. The taxation
format assumed for the property was GST (Australia) and currency was in Australian dollars.

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The cash flow was calculated for the financial year end at June. A projective cumulative cash
flow scenario has been considered with no escalations as such. Tax is assumed as being paid out
and reclaimed in the same month. The IRR and NPV Calculation are done with the inputs, they
are assumed to be inclusive of the financing costs. The interests and the corporation tax are not
considered however. The net revenue is calculated for the project commencement marked for
November of this year and the land purchase prices are not used for the calculation of the
Residual Land Value (RLV). RLV is the land purchase price.
COSTS & REVENUES
AUD
Per
AUD Per AUD Per
AUD Total
Unit Unit Total
Net
Revenu
e
REVENU
E
Quantity SqM AUD/SqM AUD
Gross Sales Revenue 44
12,400.0
0 1,027.42 12,740,000 303,333 303,333 110.0%
Residential - 1
Bedroom Units - - - -
Residential - 2
Bedroom Units - - - -
Residential - 3
Bedroom Units - - - -
Detached Dwelllings
Lots - - - -
Townhouse Lots - - - -
Commerical Office - - - -
Retail Shops - - - -
Industrial Units - - - -
Storage &
Warehousing - - - -
Other - - - -
Not Classified 44
12,400.0
0 1,027.42 12,740,000
Less Selling Costs - - - 0.0%
Less Purchasers Costs - - - 0.0%
NET SALES REVENUE 12,740,000 303,333 303,333 110.0%
Average
Yield SqM
AUD/SqM/annu
m AUD
Gross Rental Income - 1,500.00 21.00 15,784 376 376 0.1%
Residential - 1
Bedroom Units - 1,500.00 21.00 15,784
Residential - 2
Bedroom Units - - - -

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Residential - 3
Bedroom Units - - - -
Detached Dwellings
Lots - - - -
Townhouse Lots - - - -
Commercial Office - - - -
Retail Shops - - - -
Industrial Units - - - -
Storage &
Warehousing - - - -
Other - - - -
Not Classified - - - -
Less Outgoings & Vacancies (15,559) 370 370 -0.1%
Less Letting Fees - - - 0.0%
Less Incentives (Rent Free and Fit-out Costs) - - - 0.0%
Less Other Leasing Costs - - - 0.0%
NET RENTAL INCOME 225 5 5 0.0%
Interest Received - - - 0.0%
Other Income - - - 0.0%
TOTAL REVENUE (before GST paid)
12,740,225 303,339 303,339
110.0%
Less GST paid on all Revenue (1,159,617) 27,610 27,610 -10.0%
TOTAL REVENUE (after GST paid)
11,580,609 275,729 275,729
100.0%
TABLE 1: THE COSTS AND REVENUES TABLE

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FIGURE 3: SUMMARY TABLES
The above shows the rent collected for the apartments and the commercial spaces, the net
sales revenue and the total revenue after GST is paid out. The outgoings are also indicated. As
the tenancy increases the gross income also increases. These are the value projections that are
done with the estimated market values based on property future income projections.
Other Costs:
There are other costs associated with property development that are also included here;
mainly there are the Professional Fees. The Professional fees are the costs that are calculated in
connection with construction. They are calculated at the rate of 4 percent in construction. The
fees are assumed to commence from month 1 onwards, which was assumed in the Estate Master
is November of 2015. The total constructions costs assumed as starting from month 6 are
$8,400,000. The construction has been planned for around 12 months. Project financing is done
at in hundred percept debt at interest rate 8.5% per annum. There are developmental margin risks
assumed at the rate of 25% and the discounted rate assumed at the rate of 20%. In considering
calculating for the value of the property, the two primary methods for calculating value of the
project are the development profit method and the discounted cash flow analysis. The discounted

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cash flow analysis is a method used to value a project, company, property or any other asset
based on the future cash flows. The sum of all values is used to calculate the net present value.
COSTS
Land Purchase Cost 11,000,000 261,905 261,905 95.0%
Land Acquisition Costs - - - 0.0%
Construction Costs 8,400,000 200,000 200,000 72.5%
Subdivision Costs 8,400,000 200,000 200,000 72.5%
Stage Costs - - - 0.0%
Built Form - - - 0.0%
Other - - - 0.0%
Other - - - 0.0%
Other Construction
Costs - - - 0.0%
Contingency - - - 0.0%
Professional Fees 30,545 727 727 0.3%
Statutory Fees - - - 0.0%
Miscellaneous Costs 1 - - - 0.0%
Miscellaneous Costs 2 - - - 0.0%
Miscellaneous Costs 3 - - - 0.0%
Project Contingency (Reserve) - - - 0.0%
Land Holding Costs - - - 0.0%
Pre-Sale Commissions - - - 0.0%
Finance Charges (inc. Fees) - - - 0.0%
Interest Expense 314,994 7,500 7,500 2.7%
TOTAL COSTS (before GST reclaimed)
19,745,539 470,132 470,132
170.5%
Less GST reclaimed (1,767,828) 42,091 42,091 -15.3%
Plus Corporate Tax - - - 0.0%
TOTAL COSTS (after GST reclaimed)
17,977,712 428,041 428,041
155.2%
TABLE 2: OTHER COSTS
On the other hand the profits method is one which is based on the notion that the
profitability of the businesses will increases based on businesses that occupy the property.
Different properties in the location will hence be used to understand the overall value. Some

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form of tenancy or business occupation in the property could lead to devaluation of the whole
business. However this is largely based on context and hence would have to be considered as
part of the risks of the valuation of property approach in general. The differences between both
will be discussed next along with the tables on Residual Land Value calculated using Estate
Master and also the screen shots.
Now in order to determine the residual land value, data has been input into the Estate
Master software. This is the value of land ‘as is’. The residual value analysis is the method that is
used to determine the value and profitability of a place based on the expenses which are
connected to the land. Any property that is being purchased will come with a developmental
plan. The developmental plan exists so as to ensure that the land is being made maximum use of.
Having the residual value plan will ensure that the value of the land is calculated as it is after all
the deductions to the land are applied by way of property development. In this property
valuations, the ‘as is’ value is simply calculated by using the Estate Master Software. The values
are input into the Input and the Tenant Worksheet (Figure 1 and Figure 2). The calculate function
on the worksheet will result in the different performance indicators including the residual value
to be calculated. The Estate Master DF software projects two residual values based on the
method that it uses to calculate the values which are shown below.
PERFORMANCE INDICATORS
AUD
Per Unit
AUD
Per Unit
1
Net Development Profit (6,397,103) 152,312 152,312
(6,397,103) 152,312 152,312
3 Development Margin
(Profit/Risk Margin) Based on total costs (inc selling costs) -35.58%
4
Residual Land Value
Based on Target Margin of 25%
(Inclusive of GST) 1,761,821 41,948 41,948
5
Net Present Value
Based on Discount Rate of 20% p.a.
Nominal (5,083,145)
6
Benefit Cost Ratio 0.6950
7 Project Internal Rate of Return
(IRR) Per annum Nominal 255.60%
8
Residual Land Value Based on NPV (Inclusive of GST) 5,408,540 128,775 128,775
TABLE 3: PERFORMANCE INDICATORS

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FIGURE 4: RESIDUAL LAND VALUE
Two methods are used for the calculation of the Residual value on the software which is
the development profit method and the discounted cash flow analysis method. The main
elements of the residual analysis common to methods are the net development value, the land
value, the developmental costs, the interest charges and the profit (Fibbens, 2008). The residual
Land Value based on the development Margin, total costs, also including the property sales costs
is 1,761,821$ and the Residual land Value based on the discounted cash flow is the Project
Internal Rate of Return per annum nominal which is 5,408, 540. In the developmental profit
method the value calculation is done based on three different phases. Primarily there is the land
acquisition phase in which the months before construction, inclusive of the predesigns and
contract pre work is used. Secondly there is the construction phase in which the time it takes for
the project to be completed is calculated, and then there are the letting and the sales phase. The
residual appraisal hence makes use of all these costs. On the other hand, the discounted cash flow
method for residual value calculations will assume that the business will generate cash flows way
into the future. This is like forecast method and the residual value here is the discounted value
after which the cash flow will grow on forever. The annual rate at which the cash flow will grow
beyond the fixed discounted or terminal point is determined. An estimated growth rate is added
and then the values are multiplied to determine the cash flow for the year after the discounted

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point. Using the discount rate to divide the cash flow for the next year will result in the residual
value.
PART 1 B
Residual land value is used to calculate the cumulative project returns. (Data in Estate
Master)
FIGURE 5: RESIDUAL LAND VALUE UPDATED
PART 2
2.1. Property Valuation Risks
Valuation risk is the financial risk that is made from overvaluation of the net asset value
of the property. There is a need to perform detailed risk analysis in order to avoid the potential
pitfalls that arises from over estimation of the property values. There are a number of variables
that should be considered in the process of property evaluation. A number of tangential factors
are considered in this analysis. It should be marked accurately in order to avoid losses at the later
stage. Valuation risks are involved in each stage of the process. From transactional inception
stage to final stage valuation risks prove to be effective. These valuation estimates are subject to

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market risk and the values that are formed in this system are dynamic. To avoid over evaluation
of the net asset value of a property it is imperative that the there is maintenance of proper
accountability and transparency in the process. This could lead to accurate estimation of the
properties. In spite of diligent efforts for creation of accurate estimates these valuations could be
subject to change based on extenuating external circumstances that are beyond control. Different
forms of analysis such as scenario analysis and sensitivity analysis will help in identifying, and
preparing for the risks.
1.2 Sensitivity analysis
Sensitivity analysis is basically the analyses of uncertainty indexes associated with
projects. There are certain assumptions that are made in the calculation of the variables. These
assumptions could be presumed to be wrong or not relevant for certain conditions. In those cases
it should be managed by looking into alternative proposals. There are number of other
assumptions that can be made in order to develop alternative views. It is used to measure the
uncertainty in the calculations. There are a number of intrinsic factors that are involved in this
process. It is basically devised in order to determine the alternative sources of mathematical
assumptions. In the case of calibration models there are a number of factors that needs to be
devised during the initial stages. This is to avoid any potential pitfalls in the later stage (Greer,
2003). In this system a number of new aspects are probed. It is used as valuable indices for
many calculations in the finance industry. This is considered to be an important variable while
making assumption. Sensitive analysis is an integral aspect for the real estate industry. It helps
avoid valuation risks in the real estate market. In this model one variable is changed while
making calculations. Subsequent calculations are made in this analysis to determine how the
change of one variable can affect the valuation of the property. Subsequently other variables are
changed in this process. The variables that are considered in this process are initial down
payment made for the property. Net asset Valuation of the property, price sensitivity, loan
percentage sensitivity analysis is considered. The changes in one factor are seen to address the
inherent changes it will cause in valuation. This is important because it helps in determination of
the possible risks that are involved in the real estate property. Sensitivity analysis is considered
to be a smart analysis that is made by the property developers in order to avoid pitfalls and
analyze risks (Gunther, 1992). From this accurate estimations of the risks can be determined. It is

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imperative to maintain transparency of the records in order to ensure that there is accurate
evaluation. This also aids in the creation of more accountability in the process. This is an
effective tool that finds a lot of modern relevance and this model is expected to have usage in the
future as well. Real estate investors continually keep running the sensitivity analysis in order to
determine the latest changes that are reflected in the market. Financial analysts also suggest that
there should be proper evaluation done at regular intervals in order to avoid future challenges.
Using the Estate Management tool, sensitivity analysis has been conducted.
SENSITIVITY TABLE
Change
%
Net Dev.
Profit
NPV
Dev.
Margin
Project
IRR
Equity IRR
Base Case (No
Variation) 0.00% (6,397,103) (5,083,145) -35.58% 255.60% N.A.
Land Acquisition
Costs -5.00%
-3.00%
3.00%
5.00%
Construction Costs
-
10.00%
-5.00%
5.00%
10.00%
Construction Period *
-
20.00%
-
10.00%
10.00%
20.00%
End Sale Values -5.00%
-3.00%
3.00%
5.00%
Capitalisation Rate -0.50%
-0.20%
0.20%
0.50%
Sales Span **
-
30.00%
-
20.00%
20.00%
30.00%
Rental Levels
-
20.00%
-
10.00%

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10.00%
20.00%
Loan Interest Rates -2.00%
-1.00%
1.00%
3.00%
Discount Rate 18.00% (5,175,927)
19.00% (5,129,350)
20.00% (5,083,145)
21.00% (5,037,310)
TABLE 4: SENSITIVITY TABLE
Consider the sensitivity table below. It is seen to have data on the different land
acquisition costs, the construction costs, the construction period, the end sales value and more.
The reason each of these elements has to be included in the sensitivity analysis is because each
of these elements is seen to offer chances of uncertainty which could change the initial
calculations and projections. In particular it is seen that some of the uncertainties when calibrated
in the software shows for different calculations. A sensitivity analysis is a pertinent part of
evaluation because of how it able to show value rise and change over time too. The buyer could
hence plan accordingly on their purchase.
1.3. Scenario Analysis
It is the process of deriving future hypothesis based on the current market trends. IN tis
scenario analysis a number of viable alternative solutions are developed. It is found to be
effective as it helps the investors to look at viable alternative mediums. This is a set of alternative
hypothesis that explains the possible future events pertaining to the variables considered. In this
scenario analysis a number of factors are factored. It consists of optimistic and pessimistic
evaluations. It also allows the users to speculate on the current trends and derive possible
outcomes in the process. Asset allocation and stress testing are important variables that are
derived in this process. It creates the atmosphere to speculate on the various possible outcomes.
Statistical and mathematical analysis is determined in this process (Greer, 2003). Like other tools
it is important to have a proper method of accountability and transparency of the process in order
to make accurate determinations. From this analysis the over evaluation of net assets value can

17. P a g e | 17
also be comprehended. The accuracy of the results depends on the real empirical data that is been
provided.
Scenario analysis with respect to property also operates under the same assumptions. In
order to look into the viable options a number of factors are considered for the process of
scenario analysis. It is used to estimate the other net asset values. Forecasting is another method
that is derived from this scenario analysis (Scarrett, 1991). It helps in the investors to understand
about the different evaluations and form models to assess future viable alternatives. The real
estate market is subject to risk. There are a number of variable, factors and assumptions that can
go wrong in this process. Hence it is imperative to understand the other alternatives in case of
any issues. Apart from the traditional three factors of down payment, loan and price sensitivity
in evaluation of scenario analysis with respect to property should factor in rent. For property
these evaluations can make a big difference in selling the net asset value. This can lead to
reducing of the forecasted pricing if other viable models are present it will enable the investor to
reduce their losses. Like other financial models there should be continuous evaluation of the
property values in order to escape from any potential pitfalls or losses. It is reiterated that the
importance of transparency are integral in this process of evaluation. To conclude this is an
effective index of measurement which provides all the details pertaining to the asset value are
present.
SCENARIO ANALYSIS
Variable Variation
Base +
Variation Performance Indicator * Result
Land Acquisition Costs 0.00% 11,000,000 Development Profit (6,397,103)
Construction Costs 0.00% 8,400,000 Development Margin -35.58%
Construction Period
0.00%
Months 6 to
11 Maximum Debt Exposure 11,235,410
End Sale Values 0.00% 12,740,000
Date of Peak
Exposure Sep-2016
Capitalisation Rate
0.00% 0.00% Breakeven Date of Cash Flow
N.A. (Negative
Profit)
Sales Span Period *
0.00% Months 0 to 0 Project NPV (5,083,145)
Rental Levels
0.00% 15,784 Project IRR 255.60%
All Loan Interest Rates 0.00% 8.50% Equity IRR N.A.
* Includes Pre-Sale Exchange and Settlement
Spans
* Based on Net Development Profit after Profit Share
TABLE 5: SCENARIO ANALYSIS

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Consider the scenario analysis table that has been presented. In the scenario analysis
table, the land acquisitions costs, the construction costs, the end sales value, capitalization rates,
rents, development profit and more are included. The very purpose of scenario analysis is to
calculate based on the current trends or the current scenario.
1.4. One way what if analysis and Two way what if analysis
For creation of one way what is analysis it is important to factor in one variable. It
basically requires uni-variate data analysis models. It is important to device a uni-variate data in
order to understand how changes in one variable can impact the asset value of property. There
are a number of integral variables that are required for the determining the asset value of
property and to determine valuation risks. In this factor there is a need to analyze the impact of
single variable in this process (Whipple, 2006). In order to check the impact it will cause on
other. This uni-variate data analysis is essential. ‘One-way what if’ analysis provides a structured
methodology to analyze the data. This analysis is important to understand the impact and
nuances of each variable in the asset value determination. This particular uni-variaate analysis
will address the vulnerability of each variable in the sensitivity analysis. It can avoid potential
pitfalls in the future. This has proven to be effective for the financial analysts and is still relevant
in the modern era. The ‘what if analysis’ is important in the determination of the impact of
certain variables to asset value. What if analysis is a more structured approach to the sensitivity
analysis. It is essentially an important determinate in forming effective speculations. These are
generally the rent, loan percentage, principal down payment etc. In some cases there variable
performance will be interdependent on each other. This interdependence will result in changes in
the asset value. This will help identify how the impact of changes in one variable affects the
performance of the other in turn affecting the net asset value. There are a number of potential
pitfalls that could be avoided by factoring in the two way what if analysis. It is considered to be
effective indices of measurement. In the modern era there are a number of online tools and excel
tools that aids in effective determination of these speculations.
ONE-WAY WHAT-IF
ANALYSIS
Sensitivity to Changes
in: Enable Warnings Low < Mid > High

19. P a g e | 19
Land Acquisition Costs
Yes
-
5.00%
-
3.00% 3.00% 5.00%
Construction Costs
Yes
-
10.00%
-
5.00% 5.00% 10.00%
Construction Period Yes
-
20.00%
-
10.00% 10.00% 20.00%
End Sale Values
Yes
-
5.00%
-
3.00% 3.00% 5.00%
Capitalisation Rate Yes
-
0.50%
-
0.20% 0.20% 0.50%
Sales Span Period Yes
-
30.00%
-
20.00% 20.00% 30.00%
Rental Levels Yes
-
20.00%
-
10.00% 10.00% 20.00%
All Loan Interest Rates Yes
-
2.00%
-
1.00% 1.00% 3.00%
Developer's Discount
Rate
Yes
18.00% 19.00% 20.00% 21.00%
Cash Flow Ends in
Period 11
TABLE 6: ONE WAY WHAT IF ANALYSIS
FIGURE 6: VARIATIONS IN DEVELOPMENT PROFIT
The sensitivity analysis chart show how the minor variations in constructions costs could
lead to variations in development profit. Development or developer profit is basically the profit
that is incurred by basis of constructions on the property. It is the expected value (or enhanced
value) that is created by the property developer (or the person hired to develop the proper) for the
property owner. This cost is usually more than the costs involved in construction. The very
logical sense is that by one set of input more profit is realized on the land. Usually the

20. P a g e | 20
development profit would be at a range of 5-15 percent of the total costs that are going into the
development. An important element to understand here is that the developer profit need not
always be in this range. Although there is a defined market range because of the past
constructions that have been done, the current situation could change the costs incurred and the
profits realized. Consider the economic condition in the market. This could very well change
how the profits are realized. Where businesses are booming and they need commercial office
space and also want to rent out apartments for their employees to live in, then the case study
property would be an ideal fit. It allows rentals for commercial space and also personal use. On
the other hand if the economic condition in the market is down, then however the property is
developed then it would still not lead to any chance in profit expectations. Even a very well
developed property could still end up in a loss because businesses might not be expanding and
might not need office space or people would not be willing to take up newer apartments.
Miscalculations in cost estimations and other unexpected elements could also result in the price
changes.
FIGURE 7: VARIATIONS IN DEVELOPMENT MARGIN

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Conclusion
Commercial valuation of the given case property has been conducted. The Estate Master
tool was used for the valuation. Primarily the report discussed the main details on costs and
others that go into the calculations. Most property details and assumptions are given as part of
the case study itself. The other assumptions for land are of the Australian Taxation system,
zoning and more. In completing Inputs and Tenant Inputs, the costs and revenues are generated.
Residual Value is calculated and compared through two methods. The updation of residual value
in order to show project cash flow is presented in the Estate Master itself. The second main part
of the report discusses the valuation risks and sensitivity analysis for the property.
A proper sensitivity and scenario analysis is required in order to understand the risks
inherent for the property owner and developer. In spite of the clear projections and calculations
that are being done, there would be many uncertainties and risks associated with the project and
these uncertainties could be handled well when sensitivity analysis is done.

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References:
Fibbens, M. (2008) Ch3: Financial Functions. Basics of Investment Valuation for Property
People. pp.21- 39.
Greer, G.E. (2003). Simple Mathematics of Real Estate Finance.Real Estate Investment
Decisions. Lexington Books. pp.119-145.
Gunther, C. (1992). Improvements to land and on land. Real Estate Fundamentals. Bricar
Publishing, Sydney. pp. 11.
Rowland, P. (1991). The Use of Comparable Sales for Market Valuation. The Valuer, Vol. 31
No. 5, pp. 332-367.
Scarrett, D. (1991) Property Valuation. London: E & FN Spon, Print.
Whipple, R.T.M. (2006). An Outline of the Valuation Process. Property Valuation and Analysis.
Lawbook Co., Sydney. pp.57-75.