SUBDIVISIONAL

DEVELOPMENT COSTS

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Introduction
 This presentation deals with development
costs associated with subdivision.
 The intention is that you become aware of
the nature of the costs and the sources of
funds and payments.
 The topic is of particular relevance to
those in the construction industry and
government.

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Agenda
 The following topics will be explored.
 Who pays?
 Sources of capital.
 Distinguishing categories of development
costs:
 Remunerative & non-remunerative,
 Network reticulation and bulk, &
 Maintenance, Replacement & Running costs.
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Topic One: Who Pays.
 All of the costs associated with a
subdivision will be covered one way or
another.
 The “who gains and who pays” question is
as relevant here as in many other social
service provision (it can be a politically
charged question).
 Costs might be recovered by any of the
following source of funds and payment
methods described in the following slides.
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Purchaser In purchase price. This is the most direct way on
the beneficiary pays basis.

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Purchasers Through special The beneficiary pays but over
levy to a supplier an extended period.
such as a local
authority. An example is a basic charge
added to a consumption
account.

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Rate By service This is a common approach
payers payments which where a local authority has a
cover capital costs high proportion of ratepayers
throughout local able to support relatively small
authority area service extensions.

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Older By the subdivision Smaller and more centrally
Citizens making use of located subdivisions in a
historic municipal area can often ride
investments in on the backs of established
existing services. services.

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Tax By Government This occurs when a
payers. subsidies or loan government has a good
subsidies. reliable tax base and believes
it should support the financial
needs of providing services to
its population.

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Outsiders By gifts such as This can occur when a needy
. from foreign community appeals to the
nations generosity of another group.

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Topic Two: Source of Initial
Capital.
Capital can be obtained from any of the
following sources.
 Banks, building societies and other financing
organisations.
 Local authorities (accumulated funds).
 Government.
 Private savings of individuals.
 Saving schemes (comprising collective savings
of individual members).
 NGOs such as charities, churches, and service
organisations.
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A topical question.
 Developers are often guilty of selling the
erven (and housing units) before they
have actually been built.
 Students should grasp why they would do
this since profits can be higher once units
are available?

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Topic Three: Distinguishing
Subdivisional Development
Costs.

 Three groupings are distinguished.

Remunerative & non-remunerative,
Network reticulation and bulk, &
Maintenance, Replacement &
Running costs.
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Remunerative & non-
remunerative services
 A major distinction can be made between
services for which a service deliverer may
charge for subsequent deliveries or usage
and services for which there is usually no
subsequent charge.
 The former may be termed remunerative
services, and the latter non-remunerative
services.
 Examples follow.

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 REMUNERATIVE SERVICES
Service type Cost recovery Comment
Water reticulation Capital may be charged up-front, Capital charges may
but water delivery is charged also be added to
based on consumption. consumption fees. For
instance loan
Electricity network Capital may be charged up-front, repayments may be
but electricity delivery is charged added as a basic fee to
based on consumption. monthly accounts to
consumers.
Sewer reticulation Water borne refuse material is Consumption fee
being collected and disposed of as usually includes a
an on-going service. maintenance and
administration fee.
Refuse removal Solid waste material is being
collected and disposed of as an
on-going service.

Toll-Road A road user is charged for access Capital, maintenance

and usage of a particular road or
road bridge.
Vehicle parking area A charge is made to use a facility.
and administration may
be charged to the user.
A profit may be earned.
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 NON-REMUNERATIVE SERVICES
Costs are almost always recovered from
sales price or from subsidy.
Comment
Service type

Town planning cost Both the designer, materials and legal costs must be
covered.

Survey cost Fixing beacons and registering diagrams.

Cost of land Land even without services has a market price. The
price will be higher the more central and the more usable
a piece of land might be.

Street markings and street Design, labour and materials.

names boards

Street lights. Design, labour and materials

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Streets internal to a
subdivision
Streets external to a
subdivision.
Design, labour and materials. Basic earthworks with or
without a tarred surface.
Design, labour and materials. Usually these are main roads
of some sort and will be tarred. Costs may be shared
between a number of subdivisions, other developments and
ratepayers on some considered basis.

Open spaces and greenery Although not done often enough, inclusion of park,
vegetation and playground development costs can ensure a
superior environment.

Institutional erven & sports Institutions (schools, crèches, churches, etc) or sports clubs
grounds may be supported by public funds and may be partially
subsidised in a subdivision such that other purchasers make
a contribution towards their site servicing costs.

Stormwater Design, labour and material. These costs are usually

lumped with street construction costs.
Financing costs There is always a period of time between financing services
and recovery of these funds; interest and other financing
costs must be covered in the final sales price.

Administration & sales Administration involves people and documentation that

costs must be paid for. 17
Network and bulk costs.
 Another distinction of importance is
between network costs and overhead or
bulk costs.
 Network costs relate easily and directly to
the subdivision being done.
 Bulk costs are shared with other
developments and may occur as in a step
function.

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 NETWORK & BULK SERVICE COSTS
Network Services
Water reticulation, sewers,
erf access roads and local
distributors.
Costs accrue directly from
and to a subdivision.
Bulk Services
Reservoirs, main or trunk
pipes (sewers), major
distributors.
Costs accrue from a number
of new developments and
have to be apportioned
between such developments
on an equitable or politically
agreed basis.
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Maintenance, Replacement &
Running costs.
 Once a subdivision is complete most
maintenance, replacement and running costs of
services in the public domain resort under a local
authority or a service provider to whom fees are
paid directly; for example NamPower in rural
areas and Telecom.
 Services in the private domain would be a private
responsibility possibly handled by private
contract.
 The following table reviews services in the
public domain.
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 Service type Comment

 Electrical supply to street lights Maintenance and

 Services supplied to public administration costs
facilities such as public toilets would come from rates
and drinking fountains. and taxes.
 Town police and other service
departments.
 Library services, etc.
 Street markings and other
facilities that deteriorate over
short periods of time.

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 Service type Comment

Services by a private Wherever possible consumers

company or parastatal may be charged an excess on
consumption accounts to cover
these costs, otherwise there may
be government subsidies for
special services.
All constructed Wherever possible consumers
infrastructure allocated to may be charged an excess to
a local authority. cover these costs, otherwise they
are covered from rates and taxes.

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 Critical Review
 With the information provided you should be better able to
critically address the perennial question of who benefits and
who pays in any provision of services.

 This question may not be explicit but it is always implicit in

any provision of services such as to a subdivision.

 What percentage of the cost of service provision should be

borne by the local authority, what percentage by the owner
or developer, and how is that money to be recovered if at
all.

 Think about these questions when considering the financing

of electricity to informal urban settlements or to new
subdivisions in rural areas ?
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Where to Get More Information
 Other training sessions
 List books, articles, electronic sources
 Consulting services, other sources

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