HYPOTHETICAL DEVELOPMENT APPROACH

Total Land Area = 1.27 ha.

Less: Area for Roads & Open Space (30%) = 0.38 ha.
Net Area = 0.89 ha.

Assuming the lot area is 300m2 , the total

number of saleable lots would be:

There is 10,000 sqm / hectare

Lot area Assumed , 300 sqm
33

Lots 29.58 lots

say , 30.00 lots
Total Projected Sales 30,000 per sqm
Lot area Assumed , 300
270,000,000.00

The selling period is expected to be three years. The revenue from lot sales needs to be adjusted for the three-year
selling period (three-year absorption rate). Lot sales can be expected to occur approximately evenly during each
year of the sale period. The anticipated revenue must be adjusted for the deferral time by calculating the present
value of sales for each year. Thus, adopt the mid-point of each year for the deferral calculation (approximately half
the sales will occur before the mid-point, and half after the mid-point in each year). Sales shall commence soon
after purchase by the developer, and some parcels are bought off the plan.

To compute the Capitalization Rate (bank’s lending interest of 15% including owner’s equity
or bridge financing at 24%):

Bank’s Interest (70% x 15%) 70% 15% =

Equity (30% x 24%) 30% 24% =
Capitalization Rate

Year
1
Expected Annual Sales 270,000,000.00 / 3

Deffered 6 months @ 18% per annum 82,851,715.61

Year
2
Expected Annual Sales 270,000,000.00 / 3
Deffered 1 1/2 years @ 18% per annum 70,213,318.31

Year
3
Expected Annual Sales 270,000,000.00 / 3

Deffered 2 1/2 years @ 18% per annum 59,502,812.13

Present Value of Total Sales (PV) 212,567,846.06

Allowance for developer’s profit and risk of

undertaking this development
equals 20%

Less : PV / 1.20 * 0.2 35,427,974.34

Sub Total 177,139,871.71

Expected development costs: design, fees, construction (over 1 year) at Php1,000/sqm (Based on developers’
(experience) estimate); Interest on Development Costs (six months at 15% pa. interest)

30 lots @ 300 sqm lot x Php 1,000 per sqm 9,000,000.00 30.00

Add : 15% interest 675,000.00

Sub Total 9,675,000.00

(Note: Development costs spread across a whole year; Interest calculation based on borrowings and repayment
over one year; Average debt would be the full amount for six months; Income from early sales would pay some
development costs but developer would shoulder some borrowings)

Balance Available (for land purchase & interest on land) ( I ) 167,464,871.71

(Note: Land interest calculated on the basis of paying all construction costs first, then land and interest costs; Sales
income available for land payment after construction costs met; Payment of construction cost and interest will
take 0.1075/year. (Php9,675,000.00/Php90,000,000 = 0.1075)

9,675,000.00
90,000,000.00

Payment of construction cost and interest will 0.11

take
 N= 3.00

N= 3 - 0.65

N= 2.89

To compute for present value of the land

Land Interest =
1 + {(15% p.a. x 0.1075) + [15% p.a. x (2.35 years/2)]}

1 (15% p.a. x 0.1075) [15% p.a. x (2.35 years/2)]

1 0.016125 0.17625

Land Interest ( R ) 1.1924

Therefore, the present value of land is: (V = I / R)

167,464,871.71
1.1924

V= 140,446,480.10
OACH

13,820
1,142.92
0.380312 12,677.08 10000
1000 1.267708

12677080

sqm / hectare 0.89

10000
300

29.66667 10000000 14000000

33333.3333 300
46666.67

ted for the three-year

evenly during each
culating the present
n (approximately half
l commence soon

0.105
0.072
0.177 or 18%

= 90,000,000.00

= 90,000,000.00
 = 90,000,000.00

d on developers’

300 1000

gs and repayment
s would pay some

d interest costs; Sales

t and interest will

0.1075
[15% p.a. x (2.35 years/2)]

0.17625