A Developers Guide - What to Pay for Development Sites?

A Developers Guide: What to Pay for Development Sites?

Whether you're a seasoned developer or managing a growing portfolio, understanding the true value of development sites is critical in today's challenging market. This guide will walk you through how to accurately assess site values before you purchase. We've teamed up with Lateral Partners to help you leverage comparable sales data, sidestep common valuation pitfalls, and position yourself to secure funding with confidence.

Why Land Cost Validation Can Make or Break Your Development

Property development is full of risks, but one of the most costly mistakes happens right at the start - paying too much for a site.

In today's market, many developers are back hunting for land after sitting out during the period of high interest rates last year. The trouble is vendor expectations haven't adjusted to market realities. Sellers are still asking for prices that don't stack up against what developers can justify given current conditions and the recent regulatory changes that have driven up development costs. This creates pressure to acquire sites just to keep the pipeline full, sometimes with the hope that “the market will improve enough later” to make those tight numbers work.

Too often, the funding challenge emerges when significant money has already been committed. Non-refundable deposits have been paid. Due diligence costs have added up. Countless hours have gone into planning. Then when approaching lenders, the painful discovery comes that the numbers don't stack up - either the site cost was too high or the projected end sell price values were too optimistic.

By that point, options become limited and costly.

At Lateral Partners we frequently see projects where someone has overpaid for a development site or overvalued the end units. Often this results in a project being unfundable or possibly a client requiring significantly more equity to move forward. In the worst-case scenarios, the developer will need to onsell the site with consent at a loss with the purchaser of that project securing a shovel ready project saving time and money, whilst the initial developer who took on all that risk is left out of pocket and back at square one.

The good news is that with the right approach to property research, you can avoid these painful scenarios and set your project up for success from day one.

The Critical Pillars of Your Feasibility

Every development feasibility stands on three essential pillars: land cost, end sell price, and civil costs. While construction costs are usually easier to estimate with thorough due diligence, the other two pillars often determine whether your project succeeds or struggles.

Land cost sets your entry point—pay too much, and you're fighting an uphill battle from day one. The true value needs to account for what portion of the site is actually developable after considering setbacks, easements, flood risks, contours, and potential challenges with service connections.

End sell price is the most challenging part of any feasibility. One of the biggest risks in any developer's calculations is overestimating what buyers will actually pay for your finished product.

These two elements require completely different comparable analyses. For land, you're looking at recent site sales with similar zoning and development potential. For end sell prices, you need data on recent new builds that match your product type and specification level, while carefully considering future supply and demand factors.

“When we evaluate funding applications at Lateral Partners there is particular attention to what developers have paid for land and the anticipated sale values,” explains Ben Pauley, Director, Commercial & Development Adviser. “Overpaying for land can be detrimental to your equity position as a funder will consider the equity in the project relative to the value of the land, not the price. Overestimating your sale prices can mean you greatly underestimate your equity requirement and profit margins. Mistakes with these normally ends up with the funding pushing up the risk curve becoming more expensive and restrictive”.

Getting both these elements right from the start not only secures better funding terms but protects your projected margins throughout the development cycle. Let's look at how to validate each of these pillars effectively.

Validating current land value

Finding the right price for your development site goes beyond scanning listings or relying on simplistic price per square meter figures. When validating land value, you need a targeted approach - looking for similar sites with matching zoning, development potential, and location characteristics. Your goal is to find evidence of what other developers have actually paid - not what vendors are hoping to get.

A common mistake is using basic metrics like price per square meter or cv to sale ratio without context. Development sites aren’t created equal - a site might look like a bargain until you discover that a significant portion is undevelopable due to contours, flood plains, or setback requirements. What matters is the usable area and what it will ultimately yield.

With the market constantly shifting, recent comparable sales data is essential. A sale from 12 months ago often doesn't reflect current conditions, especially with recent interest rate adjustments. Focus on sales from the last 3-6 months for the most accurate picture.

The right data will not only help you avoid overpaying but also strengthen your position when negotiating with vendors and approaching lenders. By understanding exactly how similar sites are valued in today's market, you'll make decisions based on evidence rather than optimism.

Let's now look at how to apply the same validation approach to your end product values.

Understanding Your End Product Value

Getting your end product pricing right is equally critical. The market is constantly shifting, and oversupply in your area can dramatically impact your eventual sale prices. What really matters is what buyers have actually paid for similar properties in the last three to six months and what competition is coming online in the area.

Sure, that new development down the road might look similar on paper, but does it really match your project? A property might be in the same zone and a new build, but factors like the quality of the build, the specific location, and the unit mix all impact the final sale price.

Future supply is another factor that often gets overlooked. That fantastic price point you've found from recent sales might not hold up when three other developments in your area hit the market around the same time as yours. This is where proper market research becomes invaluable.

By taking the time to properly assess both current sales data and upcoming competition, you'll develop end value projections that stand up to scrutiny from both lenders and market forces. The more accurately you can predict what buyers will actually pay, the more reliable your entire feasibility becomes.

Now let's look at a step-by-step approach to finding the right comparable sales using Relab.

Finding the Right Comparable Sales - A step-by-step approach using Relab

Here's where having access to the right data tools makes all the difference. While many developers are still scrolling through listing sites and manually recording similar sales in spreadsheets, our property data tool streamlines this entire process. With Relab you can leverage our comparable sales tool (also called CMA)

For estimating current land value, follow this approach:

1) Open the CMA and enter the address of the property you want to buy.

2) Set your time frame to the most recent three months of sales data. Only extend to six months if you need more data points - and when you do, watch carefully for any price trends over that period. The market can shift quickly.

3) To find comparable development sites, filter by title type (free hold), and development zoning.

Pro tip: You can toggle on development layers that help you visualise the zoning, contours, services and public housing density on the map of recent sales

4) export your data or save it to a report with comments so you can analyse and review it further.

For estimating end prices of new builds, follow this approach:

Repeat step 1 and 2 above.

2) Filter specifically for properties built after 2020 and focus on zones with development potential.



3) Start tight with your search radius - usually within a kilometer of your site. If you're not finding enough recent sales, gradually expand to 2km. Some areas of Auckland have limited new build sales data - in these cases, expanding your radius up to 10km can help you find relevant sales in nearby areas with more development activity.



4) Review property details carefully before adding them to your analysis. Our property cards give you crucial information about each property - everything from images, cladding type to days on market, plus pre-calculated metrics like land per square meter and land per floor meter.

Common Pitfalls in Site Analysis

When validating site aquisition costs, even experienced developers can get caught out. Here are the critical things to watch for:

Understanding Supply and Demand Signals: Days on market is a valuable indicator of supply and demand in an area. When properties are sitting on the market longer, it generally signals either oversupply or reduced demand - both critical factors for your feasibility assumptions.

Not Accounting for Future Supply: Your comparable sales might show strong prices today, but what happens when several other developments hit the market at the same time as yours? Our Consents tool lets you view upcoming development consents in the area and what stage they are with consent overviews to estimate the go-live date of potentially competing projects.

Your strongest funding position

Getting the land price right from the start is fundamental to your project's success. When you've properly validated both your land acquisition cost and end sell pricing, favorable funding terms follow naturally. As we've explored throughout this guide, using comparable sales data strategically for both site valuation and end product pricing helps you make decisions based on market reality rather than optimism.

Funding experts at Lateral Partners confirm this approach;

“At Lateral Partners, when assessing development funding applications, we regularly utilise Relab and its tools to look at comparable evidence to justify the values we have in a paper. This helps us underscore the position for a funder and ensure we can get a quick and favourable approval. Dispute around values can end up with a developer being unable to proceed on a project, or worse still, finding themselves with a funding package that quickly becomes a noose around their neck.”

Learn more about Lateral Partners' approach to development funding here.

Looking for more guidance?

Development projects require accurate property data to make sound financial decisions. Our Relab property data tool gives you the edge when validating both land costs and end product pricing. Making informed decisions about site acquisition relies on having access to relevant, up-to-date sales data that's properly analysed and applied to your specific project.

Ready to strengthen your site validation process? Explore how our tools can help with your comparable sales analysis.