price for <str<strong>on</strong>g>the</str<strong>on</strong>g> completed houses at £275,000 each. From discussi<strong>on</strong>s with a quantity surveyor he estimateed <str<strong>on</strong>g>the</str<strong>on</strong>g> building cost at £100,000 per house. He allowed also for design fees, overheads and interest charges. He set a required profit of 15% <strong>on</strong> <str<strong>on</strong>g>the</str<strong>on</strong>g> net sales value. The upper limit of <str<strong>on</strong>g>the</str<strong>on</strong>g> bid for <str<strong>on</strong>g>the</str<strong>on</strong>g> site was calculated: Sale value of <str<strong>on</strong>g>the</str<strong>on</strong>g> 10 houses £2,750,000 Less selling costs @ 3% 82,500 ________ Net sale income 2,667,500 Less: C<strong>on</strong>structi<strong>on</strong> costs for 10 houses 1,000,000 Design fees @ 10% of costs 100,000 Overheads and office costs 100,000 Bank finance costs 80,000 Profit @ 15% of net sale income 400,125 ________ Total costs 1,680,125 ________ Available <str<strong>on</strong>g>to</str<strong>on</strong>g> bid for site (1.2 acres) £987,375 ________ In this case <str<strong>on</strong>g>the</str<strong>on</strong>g> site was bought for this figure and all <str<strong>on</strong>g>the</str<strong>on</strong>g> houses were completed <str<strong>on</strong>g>to</str<strong>on</strong>g> schedule and sold within six m<strong>on</strong>ths of completi<strong>on</strong>. Subsequent <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>the</str<strong>on</strong>g> land sale <str<strong>on</strong>g>the</str<strong>on</strong>g> local planning authority allowed 12 houses <str<strong>on</strong>g>to</str<strong>on</strong>g> be built <strong>on</strong> <str<strong>on</strong>g>the</str<strong>on</strong>g> site, with a c<strong>on</strong>sequent benefit <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>the</str<strong>on</strong>g> profit taken from <str<strong>on</strong>g>the</str<strong>on</strong>g> scheme. The bid price for <str<strong>on</strong>g>the</str<strong>on</strong>g> land was sensitive <str<strong>on</strong>g>to</str<strong>on</strong>g> expectati<strong>on</strong>s about <str<strong>on</strong>g>the</str<strong>on</strong>g> selling price of <str<strong>on</strong>g>the</str<strong>on</strong>g> houses. If <str<strong>on</strong>g>the</str<strong>on</strong>g> sale value estimate had been £300,000 per house, and o<str<strong>on</strong>g>the</str<strong>on</strong>g>r costs and profit rate required had remained <str<strong>on</strong>g>the</str<strong>on</strong>g> same, <str<strong>on</strong>g>the</str<strong>on</strong>g> land bid would have been £1,194,500. Had <str<strong>on</strong>g>the</str<strong>on</strong>g> expectati<strong>on</strong> been £250,000 per house <str<strong>on</strong>g>the</str<strong>on</strong>g> bid would have been £881,250. In any of <str<strong>on</strong>g>the</str<strong>on</strong>g>se cases <str<strong>on</strong>g>the</str<strong>on</strong>g> vendor would have realised a c<strong>on</strong>siderable capital gain over <str<strong>on</strong>g>the</str<strong>on</strong>g> agricultural value of £2,500. Clearly rising expectati<strong>on</strong>s about house prices, based partly <strong>on</strong> expectati<strong>on</strong>s about lower interest rates and/or higher lending multiples for borrowers, will feed through <str<strong>on</strong>g>to</str<strong>on</strong>g> upward pressures <strong>on</strong> land prices.This makes land an attractive opti<strong>on</strong> for inves<str<strong>on</strong>g>to</str<strong>on</strong>g>rs, whe<str<strong>on</strong>g>the</str<strong>on</strong>g>r <str<strong>on</strong>g>the</str<strong>on</strong>g>y <str<strong>on</strong>g>the</str<strong>on</strong>g>mselves are planning housing development or not, since <str<strong>on</strong>g>the</str<strong>on</strong>g> ultimate fac<str<strong>on</strong>g>to</str<strong>on</strong>g>r creating rising value is society’s need for more housing and o<str<strong>on</strong>g>the</str<strong>on</strong>g>r forms of development. Given <str<strong>on</strong>g>the</str<strong>on</strong>g> nature of <str<strong>on</strong>g>the</str<strong>on</strong>g> unknowns at <str<strong>on</strong>g>the</str<strong>on</strong>g> point of land purchase, <str<strong>on</strong>g>the</str<strong>on</strong>g> wide swings in value and <str<strong>on</strong>g>the</str<strong>on</strong>g> possible need <str<strong>on</strong>g>to</str<strong>on</strong>g> ‘play’ a market which is markedly cyclical in <str<strong>on</strong>g>the</str<strong>on</strong>g> short term it is more accurate <str<strong>on</strong>g>to</str<strong>on</strong>g> describe many dealings in land as ‘speculati<strong>on</strong>’ ra<str<strong>on</strong>g>the</str<strong>on</strong>g>r <str<strong>on</strong>g>the</str<strong>on</strong>g>n ‘investment’. Zacchaeus 2000 Trust - <str<strong>on</strong>g>Memorandum</str<strong>on</strong>g> <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>the</str<strong>on</strong>g> <str<strong>on</strong>g>Prime</str<strong>on</strong>g> <str<strong>on</strong>g>Minister</str<strong>on</strong>g> - May 2005 61
62 Zacchaeus 2000 Trust - <str<strong>on</strong>g>Memorandum</str<strong>on</strong>g> <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>the</str<strong>on</strong>g> <str<strong>on</strong>g>Prime</str<strong>on</strong>g> <str<strong>on</strong>g>Minister</str<strong>on</strong>g> - May 2005