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Annexe D
Financial appraisal
Example 1 - Type 1 project (tender stage)
This example is based on a new build project of 10 properties, where the project receives tender approval in 2008/2009 and completes in the same year. At tender stage, it is assumed that each owner will take a 60 per cent equity stake in a property. The District Valuer has valued each property at £110,000.
Scheme costs | £ |
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Land acquisition | 104,500 |
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Works | 750,000 |
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Fees | 75,000 |
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Other costs - including capitalised interest charges (see note 1) | 34,256 |
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Development allowances (see note 2) | 36,244 |
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Total costs | 1,000,000 |
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Funding breakdown | £ |
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Owner (see note 3) | 660,000 |
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Grant (see note 3) | 340,000 |
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Total costs | 1,000,000 |
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Note 1 | The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged. |
Note 2 | Development allowances are calculated as follows: | £ |
Allowance per project | 13,424 |
Allowance per new unit (10 x £671) | 6,710 |
New Supply Shared Equity allowance (see note 4) | 16,110 |
Total development allowances | 36,244 |
Note 3 | Given that owners are each expected to take a 60 per cent equity stake in the properties and the properties each have an open market value of £110,000, the registered social landlord can expect to receive a total sales income of £660,000 from owners (60 per cent of £1,100,000). The difference between this sum and the total cost of the project equals the required grant funding. |
Note 4 | An allowance of £1,611 per property (£1,691 per property at the VAT enhanced rate) will be available for marketing and legal costs. |
Financial appraisal
Example 2 - Type 2 project (tender stage)
This example involves a registered social landlord buying five properties (at an appropriate discount) from a private developer. The project receives tender approval in 2008/2009 and completes in the same year. At tender stage, it is assumed that each owner will take a 75 per cent equity stake in a property. The District Valuer has given each property an open market valuation of £120,000.
Scheme costs | £ |
|---|
Property acquisitions | 500,000 |
|---|
Other costs (including capitalised interest charges) (see note 1) | 15,166 |
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Development allowances (see note 2) | 24,834 |
|---|
Total costs | 540,000 |
|---|
Funding breakdown | £ |
|---|
Owners (see note 3) | 450,000 |
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Grant (see note 3) | 90,000 |
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Total costs | 540,000 |
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Note 1 | The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged. |
Note 2 | Development allowances are calculated as follows: |
| £ |
Allowance per project | 13,424 |
Allowance per new unit (5 x £671) | 3,355 |
New Supply Shared Equity allowance (see note 4) | 8,055 |
Total development allowances | 24,834 |
Note 3 | Given that owners are each expected to take a 75 per cent equity stake in the properties, the registered social landlord can expect to receive a total sales income of £450,000 from owners (75 per cent of £600,000). The difference between this sum and the total cost of the project equals the required grant funding. |
Note 4 | An allowance of £1,611 per property (£1,691 per property at the VAT enhanced rate) will be available for marketing and legal costs. |
Financial appraisal
Example 3 - Type 3 project (tender stage)
This example is based on a five property new build project, which receives tender approval in 2008/2009 and completes in the same year. As the project involves existing owner occupiers whose homes are scheduled for demolition, it is assumed at tender stage that each owner will take an equity stake equivalent to the value of their existing home. The District Valuer has valued each of the existing properties at £40,000 and has valued each of the new properties at £85,000.
Scheme costs | £ |
|---|
Land acquisition | 50,000 |
|---|
Purchase of existing owners' properties | 200,000 |
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Works | 350,000 |
|---|
Fees | 35,000 |
|---|
Other costs (including capitalised interest charges) (see note 1) | 15,166 |
|---|
Development allowances (see note 2) | 24,834 |
|---|
Total costs | 675,000 |
|---|
Funding breakdown | £ |
|---|
Owners (see note 3) | 200,000 |
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Grant (see note 3) | 475,000 |
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Total costs | 675,000 |
|---|
Note 1 | The grant provider will accept capitalised interest charges arising from any projected development period borrowings as a legitimate capital cost. Estimated interest charges should be based on the projected level and timing of development period borrowings. In line with existing procedures, claims for payment of grant for capitalised interest charges should be substantiated by documentation from the registered social landlord's lender confirming the amount of interest actually charged. |
Note 2 | Development allowances are calculated as follows: |
| £ |
Allowance per project | 13,424 |
Allowance per new unit (5 x £671) | 3,355 |
New Supply Shared Equity allowance (see note 4) | 8,055 |
Total development allowances | 24,834 |
Note 3 | Given that an owner is expected to take a £40,000 equity stake in a property, the registered social landlord can expect to receive a total sales income of £200,000 from the owners (5 x £40,000). The difference between this sum and the total cost of the project equals the required grant funding, and each owner will have a 47.06 per cent equity stake in their new property. |
Note 4 | An allowance of £1,611 per property (£1,691 per property at the VAT enhanced rate) will be available for marketing and legal costs. |
Financial appraisal
Example 4 - Type 1 project (completion stage)
This example shows how a reassessment of grant would work at completion stage on a 10 property development where the actual levels of equity stake taken vary from those projected at tender stage. The project was approved and completed in 2008/2009. At tender stage, it was assumed that each owner would take a 60 per cent equity stake, whereas each owner actually took a 70 per cent stake. The District Valuer valued each property at £90,000.
Scheme costs | £ |
|---|
Land acquisition | 70,000 |
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Works | 675,000 |
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Fees | 67,500 |
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Other costs | 28,756 |
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Development allowances | 36,244 |
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Total costs | 877,500 |
|---|
Funding breakdown at tender stage | £ |
|---|
Owners (see note 1) | 540,000 |
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Grant (see note 2) | 337,500 |
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Total costs | 877,500 |
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Funding breakdown at completion stage | £ |
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Owners (see note 3) | 630,000 |
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Grant (see note 3) | 247,500 |
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Total costs | 877,500 |
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Grant reconciliation | £ |
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Grant approved at tender stage (see note 4) | 337,500 |
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Grant approved at completion stage (see note 4) | 247,500 |
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Difference | 90,000 |
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Note 1 | Given that owners were each expected to take a 60 per cent equity stake in the properties, the registered social landlord expected to receive a total sales income of £540,000 from owners (60 per cent of £900,000). |
Note 2 | The difference between the anticipated sales income and the total cost of the project equalled the required grant funding at tender stage. |
Note 3 | Instead of each owner taking a 60 per cent equity stake in a property, each owner actually took a 70 per cent stake. Given that the properties each had an open market value of £90,000, the registered social landlord received a total sales income of £630,000 from the owners (70 per cent of £900,000). The difference between this sum and the total cost of the project equals the actual grant funding required. |
Note 4 | The difference between the grant approved at tender stage (£337,500) and the grant required at completion stage (£247,500) is £90,000. The registered social landlord must repay this sum to the grant provider. |
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