Over the past decade, housing and real estate in the United Kingdom have undergone a real transformation. With the government initiatives and incentives to encourage first-time buyers, real estate has significantly advanced with progressively rising return on investment for the last five years, especially on investments around the East Manchester region is at 65% in 2020. The development in East Manchester has tremendously advanced over the years because of the vibrant sporting environment created by the presence of the Etihad stadium. The population growth around North West England has also contributed to the success of the real estate industry in the region. Therefore, it is suitable to recommend North West England, especially East Manchester, ideal for the proposed real estate investments. As the real estate and property consultant agency, this is a professional advisory report to advise the client on the potential of investing on East Manchester.
The real estate and housing market in the regions within and around Manchester has experienced a significant transformation. It is among the top-ranked England cities with a stable and best-performing housing market. The housing market in Manchester City is attributed to the vibrant economic environment around provided by several industrial parks, sporting activities around, and population growth. The recent census established that the region of North West England had had a steady population increase in the past two decades. This increase is due to favorable climate, sporting activities that have brought club football supporters players to settle around stadia, and the region’s vibrant economy. The ripple effect of these population increases, sporting activities, and favorable economic environment has been felt by the real estate developers who have managed to sell their properties to the increasing demand for housing. The preliminary research established that strategic house planning has a well-polished history in North West England; nevertheless, the politized nature of the process implies that development history is a turbulent one.
The site location is strategically situated in an ideal location, adjacent to Etihad and Manchester City Center. It is accessible from all four axes and located on the Ashton Old Road; these are preliminary considerations for valuing the property development site. The Manchester City Center presents the conurbation core, a highly coveted economic region by almost all real estate investors. Due to these potentials, the East Manchester region has seen the healthiest economic growth rates in the last five years. However, despite the exemplary economic precedence in the past years, inequality in income from real estate and property investment is a major issue that has been ailing the sector for years. The growth in real estate has been strong around Manchester City Center, with an average increase of about 2000 units in the past five years. The tremendous growth in the number of apartments in the region clearly represents a significant potential for investing in the location.
Valuation of the market status based on the gross development value of the site, the rental rates on the existing properties are pretty impressive, benefiting both the real estate agents and homeowners. The investors have a better chance of acquiring financial support to fund the proposed development project. However, the possibility of inflations on the funding might negatively impact the developer’s side since they would be forced to pay more than the initially intended interests. As property consultants, the report advises that the client have to establish a financial backup plan or exit strategy to encounter and minimum the impact of the risks during project implementation.
The alternative financial plan needs to demonstrate the value of the gross development value at its best results, the most likely outcomes, and trimmed situations. The valuation of the property was designed through a residual approach in regards to the comparable transactions in the day-to-day real estate industry. The current property market in North West England shows that Manchester property’s capital stands at 32.2% between 2020 and June 2021. According to the Manchester Crane Survey report, the average real-estate value in Manchester’s Ashton Old Road region is £153,600. The survey also established London’s markets tipped for successfully growing areas include Ashton, Newcastle, Castlefield, and Salford
Real estate and property valuation demand a proper understanding of the models of economic potentials of the region and property under valuation. Residual value estimations are the only valuation method that can sufficiently determine the actual market value of the undeveloped site or property that needs refurbishment. The land or property valuation provides essential information for investors and financiers. Among various property valuation options for property, land, or site, the residual valuation approach was considered to determine the estimated value of the land as well as the redundant public house on the Ashton Old, Manchester (M12 6LP).
The valuation of the land and the abandoned property on site helps compute the cost of investing on the land through real estate agents and the potential return on investment after the redevelopment. Specifically, the residual valuation approach was adopted to compute or calculate the residual land value, the worth of the land after development, plus the cost of property construction, maintaining the property minus the cost of purchasing the land. However, the valuation process was conducted with necessary precautions, and only qualified and experienced experts were allowed to execute the valuations. Consequently, the outcome of the residual valuation was subjected to sensitivity analysis to reflect on the market variation with the possible future changes in London’s real estate market.
According to JEL development area classification, the Ashton Old Road, Manchester site is under R33 Residential, Commercial, and Nonresidential Real Estate Markets. Therefore, the combination of cot and income approach was utilized in the residual valuation of the market value of the land, cost of developing the plot, and the anticipated return on investment once the project is complete. Various assumptions were considered in the valuation of the Ashton Old Road site to present realistic and accurate value of the land and cost of developing on the land as well as the anticipated profit. For instance, the value of the land at Manchester was calculated as the surplus remaining after deduction of the estimated development expense made on the estimated total cost of developing the site. Calculation on residual valuation was based on the gross development value and deductions of the construction cost and investor’s return on investment to obtain the residual value of the development property. The utilized residual valuation method is as follows
The first step of property valuation is to determine the Gross Development Value (GDV). The GDV was completed on the assumption that the land and property were in the best state and highest use at the time of valuation and the valuation was dependent on the property type. The investment method of property valuation was utilized to calculate the GDV. This required an estimation of the future rent of the property after its development alongside the probable investment yield. The GDV was estimated as the annual appraised rented value annually after deduction of the non-recoverable cost divided by the equivalent yield return. These two inputs are determined based on market comparison and reflect the current market status. Non-recoverable costs considered in the analysis included insurance, property tax, and incidental costs (costs not transferred to tenants).
The formula of gross development value
GDV =
Where:
ERV – Estimated Rental Value (per annum)
NRC – Non-Recoverable Costs
NIA – Net Internal Area
EY – Equivalent Yield
Other aspect considered in the valuation of the land include, development costs, construction costs and development profits
Table 1; GDV calculations
Property Development and Real estate is a “high reward/high risk” investment; therefore, it implies that the proposed real estate development at Ashton Old Road, Manchester, will likely encounter systematic or unsystematic risks. Property Development is a pretty dynamic industry that is affected by a series of financial and market factors that have the potential to dictate the market value of any given property. In the given case, systematic risks are the investment risks within the market as a function of geopolitical, macroeconomic, and other policy factors. These risks directly affect the public markets and indirectly on individual property. The given project’s anticipated systematic risks include inflation, corruption, change in price rates, and change in interest rates. Mitigating systematic risks might be challenging since they external market factors; however, from a professional advisory perspective, the investors have to comply with the laws and regulations governing the market, consider the project during favorable economic times and take the shortest time to complete the project.
On the other hand, unsystematic risks in this kind of property development project are the market factors that arise from development operations and can be controlled with proper project management. And in this project, the probable unsystematic risks could include high and abnormal operational costs, high implementation costs, employee strikes, high employee turnover, among other internal organizational factors. The only leverage on unsystematic risks is that they are diversifiable in nature; thus, they can be minimized, controlled, and mitigated by the involved parties. Therefore, the mitigation of these types of risks requires that the client organize and properly schedule for only necessary operations to cut on the operational costs, among other unsystematic risks that might be encountered during the project.
Like any other economic market, the real estate industry has seen a dramatic transition due to rapid technological advancement that has a ripple impact on marketing strategies. Over the past decade, the marketing methods in property development and real estate have evolved, giving rise to several options to boost the industry’s profitability. The professional advice to the prospective clients intending to venture into London’s real estate market is to consider a novice modern marketing approach to promote the property. The first step in the marketing approach is to conduct a market survey and identify the right target market. It allows the brokers and agents to focus on a niche market, thus understanding the market’s details. After understanding and identifying the target market, follows the creation of an online market profile as part of website marketing. The website has to be professionally designed with the project’s prospects and discounted prices relevant to the market to attract potential buyers. It is recommended that the client contract a marketing expert analyze the market stats, and develop a CRM to automate the marketing practice.
Proper and effective marketing is desired to enable the business to make sales on the units that translate to increased GDV. Besides marketing, other strategies and approaches are available for consideration to increase the return on investment. The clients should consider low impact design methods in constructing the units as this could increase the salable square footage of the units, and this perfectly fits the Ashton Old Road site because it falls within the municipality of Manchester City. The advantage of considering low impact design is that the contractor would be able to build more units on the same site and minimize the cost of storm drainage and inlet structures. Most importantly, is that the design should be done in the most modern construction designs that conform with the market trends to attract potential developers and customers in the region given that the population of East Manchester, where the project is located, the majority are youths and young professionals who have a taste on classical designs.
Conclusion
The Manchester Crane Survey report on England’s real estate market, as detailed by Deloitte, revealed that the housing and real estate in the United Kingdom over the past years had undergone a real transformation. With the government initiatives and incentives to encourage first-time buyers, real estate has significantly advanced with progressively rising return on investment for the last five years, especially on investments around the East Manchester region is at 65% in 2020. The development in East Manchester has tremendously advanced over the years because of the vibrant sporting environment created by the presence of the Etihad stadium. The residual value method was considered among other valuation methods to estimate the site’s market value that provided critical information for the client in making essential decisions involving the development of the site.
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