Pricing of lots in a new development

In June the Perth office had an interesting question to answer from a client.  The question – what prices should be placed on residential lots in a proposed new development where there have been no sales of comparable land to provide a comparison?

The proposed development is a cleared area, with some elevation, which is surrounded by native bushland.  The nearest sales have been occasional and in an area developed many years ago and several kilometres away, on low-lying land.

The method we adopted was to:

  • Gather data on sale prices for nearby land, sold over the past five years, and
  • Assess the premiums or discounts that might apply to those sale prices, using evidence from other locations.

The data on nearby land sales was gathered for a discrete area and over five years because there had been only a small number of sales in any one year.  Sales data was adjusted for the date of sale to give a comparable current value.

development

We could think of a number of sources of premiums or discounts.  They were:

  • Multi-lot developments have the attractions of common standards, better integrated planning. They have the disadvantage of bringing many lots to the market at one time.
  • An enclave in a bush setting has an attraction for potential buyers from similar near city or rural backgrounds. An offset to this attraction is the added fire risk.
  • Other considerations included proximity to major and local shopping, proximity to services such as medical hospital and Centrelink, education services, availability of public transport, distance to the CBD or other major areas of employment. For all of these considerations there was no measurable distinction between the development site and the primary reference land

Of all the factors that might be considered to make a material difference in the price of residential lots in between the development site and the reference land, and were considered to warrant particular analysis were:

  • Lot sizes
  • Bushland setting
  • Fire risk
  • Multi-lot development

We identified and measured a marked premium for smaller lot sizes with prices recorded per square metre.  A premium of 7.7 per cent was identified for blocks sold in large developments.   We measured the cost of extra fire risk in terms of the costs of the higher building standards that are required to bring houses in fire risk areas up to a standard with other houses.  It was not possible to identify a premium for a bushland setting – probably because of the many other confounding factors that impact the price.

The detailed analysis enabled MacroPlan to provide the intending developer with detailed price advice, on an individual lot basis.


About the author:

Brian Martin
Economic Analyst
martin@macroplan.com.au

Brian has 13 years’ experience as a consultant economist in the mining, water and agriculture sectors. Brian has extensive experience and skills in economic modelling, impact analysis, benefit cost analysis, project management and in working within a multi-disciplinary environment.

About MacroPlan:
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.

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