Integrated Property Advisory – Why Most Valuers Don’t Get It & Fewer Still Deliver It

“It is a capital mistake to theorize before one has data.” Sherlock Holmes , (Arthur Conan Doyle).

Understanding the development potential of a property is the most fundamental step in assessing its true market value. Why then is this critical first step neglected by the majority of traditional property valuation firms?

Most people understand this concept intuitively – a block of land where you can build a single dwelling is worth less than the same sized block of land where you can build 2 dwellings, and worth less again than the same sized block of land where you can build a 10 storey apartment tower.

The integration of valuation and town planning advisory will increasingly become the industry standard over the next 10 years, as property owners insist on having full visibility of the valuation uplift opportunities and risks for their property portfolio.

Fortunately there is a standard framework of governing principles and standards (collectively known as the NSW Planning System) that governs what type of development is permissible on any parcel of land in NSW. This framework is based on the Environmental Planning and Assessment Act 1979 and has many levels of documentation including State Environmental Planning Instruments (SEPPs), Local Environment Planning Instruments (LEPs), Development Control Plans (DCPs) and other planning instruments.

Unfortunately the interpretation and application of this planning framework, to understand the development potential of an individual property, is often complex; relying on nuanced legal precedent and the interpretation of ‘grey areas’ within a multi-tiered document suite to get right. For this reason there exists a profession of Certified Planning Professionals, to guide property owners through the process of interpreting and applying for development consent under this framework.

Traditionally town planning firms and valuation firms have existed separately, with property valuers having a basic working knowledge of town planning; adequate to value your property with basic assumptions regarding permissible uses of land, and disclaimed that ‘in the event that town planning advice is received that materially impacts the assumed highest and best use of the land, this valuation advice should be referred back to the valuer for re-consideration’.

This trend has lead to the emergence of a growing number of innovative property consultancies, such as EPS, HillPDA and MacroplanDimasi, that specialise in the integration of property economics and planning advisory.

This approach is adequate for mass-produced bank mortgage valuations, where the valuer is instructed by the lender to conservatively assume that the existing use of the land is the highest and best use, and to disregard any upside in value.

However, for sophisticated land-owners, investors and financiers who are seeking to pro-actively understand and optimise the value, cash-flow and risk of their portfolio, the traditional approach of separating valuation and town planning advice is increasingly being viewed as an outdated and inadequate approach.

As the complexity of the planning framework increases, property stakeholders are increasingly recognising that close integration of the two disciplines is critical; both for maximising property values/profits and for the careful management of downside risk.

This trend has lead to the emergence of a growing number of innovative property consultancies, such as EPS, HillPDA and MacroplanDimasi, that specialise in the integration of property economics and planning advisory.

Every property is unique, and there are countless examples where the nuanced application of town planning expertise can make an order-of-magnitude difference to the assessed value of a property.

For example:

●    Native vegetation risks.

On greenfield sites a lack of proper understanding of native vegetation implications can have devastating financial impact on development projects. For example, a substantially cleared site turns out to be substantially native grassland, leading to biodiversity offsetting costs running into the millions or tens of millions of dollars.

For some sites, the protection of the site in perpetuity for environmental purposes (and the generation of Biodiversity Credits under the NSW Biodiversity Framework) may actually be more financially valuable than developing the property.

●    Unexpected minimum lot sizes.

A valuer undertaking a ‘minimum lot size’ search for a residential property through the NSW planning portal may not appreciate that often Part 4 of the relevant Local Environmental Plan will override the nominated base-line minimum lot size. Allowing the subdivision of the land into much smaller lot sizes.

A valuer assuming that a lot cannot be subdivided, when in fact it is permissible to subdivide into 2 or 3 separate lots each with a dwelling entitlement, is likely to substantially underestimate the market value of that land.

The integration of valuation and town planning advisory will increasingly become the industry standard over the next 10 years, as property owners insist on having full visibility of the valuation uplift opportunities and risks for their property portfolio.

EPS is a multi-disciplinary property advisory firm, specialising in unlocking value through the integration of property economics, town planning and environmental advice.

To confidentially discuss your property, portfolio or project requirements contact the EPS Property Team: 02 9258 1985 | Sydney, 02 4981 1600 | Hunter Region or reception@enviroproperty.com.au.