Tuesday, October 29, 2013
Property counters - determining future earnings
Most people would have already know about the following, but for someone just beginning looking into property plays, it might be a good idea to calculate future earnings from the various projects.
Quite a number of developers are sitting on various sold-out launches 2-3 years ago. Most will start recording the earnings as their projects TOP in the next 1-2 year, as interest rate is still relatively tame, It is unlikely to see a high number of returns to developers, but you can give a 5-10% discount if you like.
Now the numbers:
1) The price sold and the number of units and whether the project is wholly owned or a JV
e.g. Lee Metals Austville (Data from sq foot, you can use free data from uRA)
I use the conservative average price of $700 psf and multiple it by the number of units and the smaller of unit area range. Since Lee Metals own 35%, I then multiple it by 0.35, that should be the revenue generated from this project.
Want a more accurate figure? If you like, you can do each transaction one at a time and add them all up.
I then use a margin of 20% to calculate net earnings.
Why 20%? That is the conservative estimate that I get from my comparison of projects from CES, and other property counters.
Austville is a EC development, there isn't a lot of comparisons, if you want a more accurate gauge, look at similar development by the company in the past, look at its margin and then look at land cost.
land cost info is also available
Square foot only archive info for past 2 years. If you keep tracking for years, this will not be a issue, or you get dig URA figures.
BCA track contruction costs
I do not calculate construction costs psf. I simply look at past margin, and the land cost and construction then to achieve that margin of SIMILAR development, then I look at land cost and construction cost now, and if info is available from sqfoot research, what is the break even price. I would then know if the margin is realistic, or conservative. I will estimate the margin and then give a discount of few percent, and then arrive at the figures.
Do it again if the developers have multiple projects.
I only look at data if the project is sold, but I do keep track of developers future development and landbank if any. When they first launch their properties, you can go to the showroom to scuttlebutt the demand or call an agent to sound him out. Similarly, you can just look at the company track records in selling the projects.
Other valuation apply too, such as gearing level, NAV discount, RNAV discount.
Basic info, hope you find it useful
Posted by Sillyinvestor at 9:57 PM