"USB 242 ExperienceProperty HypotheticalDevelopmentIntroduction • In Imagine Property a brief introduction was givenin relation to the use and basic procedure for thehypothetical development valuation method. • This lecture will? explore the valuation method in more detail ? Explain how why and when the method should be used ? Detail the importance of a check method whenadopting hypothetical development ? Analyse the components of the method ? Provide an example of the use in practiceBackground • From a valuation perspective a relatively new valuationmethod • Older than DCF but not as old as direct comparison orsummation • Introduced to overcome the problems associated withvaluing greenfield and brownfield sites for residentialsubdivision and development; especially where saleswere limited • Provides a more detailed perspective of the issues andproblems associated with multi-lot/unit developments • Can be used as a way of determining propertydevelopment feasibilityWhy Hypothetical Development • Used to determine the value of greenfieldand brownfieldsites or re-developmentsites/properties • The method is particularly suitable forland/property that has been rezonedallowing a higher use than surroundingproperties.• In such cases the availability of comparable salescan be limited or non existent (comparison withother areas may not be appropriate) • The sale price of the land may have been basedon previous land use (zoning) or the land mayhave been held for a long period of time so notrelevant for valuation purposes.• In such cases the aim of the HD method is todetermine the value of the land not on the pastuse but the allowable use now (based on theassumption that all approvalsfor higher usedevelopment are in place). • This is referred to as the “englobo value”When • Valuation ofland suitable for subdivision ? Residential lots ? Industrial lots ? Rural residential • Strata subdivisions ? Residential (units, villas and townhouses) ? Industrial and commercial units ? accommodation • project feasibilityValuing Greenfield Sites • Greenfield developments are new developmentson vacant non developed land. Typically newhousing or industrial subdivisions on previouslyrural or rural residential land rezonedresidential or industrial but still virtually rawland."