Development Inputs
Frequently Asked Questions
What is a property development appraisal?
A development appraisal is a financial model that calculates the viability of a property development project. It takes the Gross Development Value (what you can sell for) and deducts all costs — land, construction, professional fees, finance, and sales — to determine the developer's profit. It is also used to calculate the maximum land bid (residual land value).
What is the residual land value method?
The residual method calculates the maximum price a developer should pay for land. The formula is: Residual Land Value = GDV - Construction Costs - Professional Fees - Finance Costs - Sales Costs - Developer's Profit Target. If the land is priced above this value, the development is not financially viable at your target profit.
What is a viable developer's profit margin in the UK?
The industry standard for residential development viability in the UK is 17.5%–20% profit on GDV, or 20%–25% profit on cost. Local authorities use 17.5–20% on GDV as the benchmark in Community Infrastructure Levy (CIL) and Section 106 negotiations. Below 17.5% on GDV, developers can argue that affordable housing contributions make the scheme unviable.
How do you calculate construction cost per sqm in the UK?
UK construction costs in 2026 vary significantly by region and specification. As a guide: basic residential new build costs £1,800–£2,200 per sqm; mid-range is £2,200–£2,800 per sqm; high specification is £2,800–£4,000+ per sqm. London typically adds 20–30% to national average costs. Always get detailed contractor quotes before committing to land.
What contingency should I include in a development appraisal?
A contingency of 5–10% of construction costs is standard in UK development appraisals. Use 5% for straightforward new build on clean land, 7.5% for conversions or sites with some unknowns, and 10%+ for complex sites, demolitions, or contaminated land. Contingency is there for unforeseen construction costs — do not reduce it to make a scheme appear viable.