Understanding the value of the property
Analysing the potential of real estate
The potential analysis is a key tool for evaluating properties that goes beyond analysing the current state and identifies opportunities for increasing value through densification. The revised Spatial Planning Act in Switzerland calls for greater inward densification, which has prompted many municipalities to adapt their building and zoning regulations. In many areas, this allows for higher buildings with a larger «footprint». The change from the utilisation rate (AZ) to the overbuilding rate (ÜZ) is particularly important here. The ÜZ determines how much of a plot can be built on and allows this area to be replicated up to the permitted height for each storey.
Single-family homes and smaller apartment blocks that were built before 1960 and are now located in densely populated zones are particularly affected. These buildings, originally built on large plots with spacious gardens, can be considerably extended as a result of the changed building regulations. The land value of such properties can increase significantly as a result, often beyond the sale value of the existing building.
The residual value decides
Not every property in a densely populated area is suitable for development. The decisive factor is the so-called residual value, which describes the net yield of a potential new construction project. To calculate the residual value, the potential construction volume of a property is determined and the possible proceeds from letting or sale are estimated. All development costs are deducted from these proceeds, including demolition, construction, planning, financing and risk buffers. If the residual value is higher than the sales value in its current state, it is advisable to either sell the property as a development project or develop it yourself.
What added value does the potential analysis provide?
An illustrative example shows the benefits of analysing potential: after the analysis, a detached house with a market value of CHF 2,950,000 showed potential for the construction of five condominiums worth CHF 11 million. After deducting the construction costs, the residual value was CHF 4,750,000, which meant added value of CHF 1,800,000.
Without this analysis, the owners would have sold their property far below its value. The potential analysis made it possible to fully utilise the profit potential and at the same time secure their own flat in the new building.
Potential analysis maximises property value
The true value of a property is often only revealed by a comprehensive analysis of its potential. Older buildings on large plots of land in particular offer considerable utilisation reserves that need to be recognised and valued. Della Valle Immobilien helps its clients to get the most out of a property sale by offering a comprehensive solution from a single source that covers all tax, financial and planning aspects.