Residual Land Value and Profit on Cost

Extracted from Real Estate Project Strategic Financial Management Handbook: A Practical Guide · Part 2: Feasibility analysis and investment decisions
Hypothetical example: a condominium with 9,880 sq m of saleable area, an average selling price of 153,000 THB/sq m, development costs based on the cost template in the accounting handbook, and 4 rai of land. The owner is asking THB 219 million.

Revenue

Total saleable area (NSA)sq m

Average selling priceTHB/sq m

Costs (excluding land)

Construction and soft costs, including contingencyTHB

Finance costsTHB

Marketing and commission% of GDV

Transfer-day taxes and fees borne by the developer% of GDV, e.g. SBT 3.3% + seller's share of transfer fee 1%

Developer's target profit% of GDV

Land

Fees and taxes on land purchase% of land price, borne by the buyer

Land sizerai (1 rai = 400 sq wah)

Owner's asking priceTHB

Maximum acceptable land price (Residual Land Value)–

GDV–
Per sq wah–
Difference from asking price–
Profit on Cost at the asking price–
Margin on GDV at the asking price–

Results are calculations for learning purposes. The figures entered are hypothetical examples, not real project data.

Formula

GDV = saleable area × average selling price
RLV = (GDV − development costs − financing costs − selling costs − transfer-day taxes − target profit) ÷ (1 + land purchase fees)
Profit on Cost = (revenue − total cost) ÷ total cost

When to use

Set a ceiling price before negotiating the land purchase
Value the land when the landowner contributes it to a joint venture (land-in-kind JV)
Check the sensitivity of the land price to selling price and construction cost. Red cells are cases where RLV is below the asking price.

Financing costs also depend on the land price. If the land price changes significantly, recalculate financing costs from the cash flow model.

Residual Land Value and Profit on Cost

Formula

When to use

Tools to use together