A property developer is interested in acquiring the freehold interest in a site measuring 0.2 ha that is for sale at the price of R5.5 million within in major town centre. Town planning permission has been granted for the erection of 5,000 square meters (IPMS-1) of offices on the land to a maximum height of 6 storeys. This would provide an IPMS 2- office area of 4,750 square meters and an IPMS 3- office area of 3,750 square meters. The local planning authority has imposed a requirement that no more than 40 car parking spaces are provided. The overall size of these car spaces allowing for turning room is to be 9 meters by 3 meters and is to be provided on the surface of the site, with any remaining land area being landscaped.

Site clearance and preparation work at a cost of R150,000 are required before construction works can commence. Construction costs are anticipated to be R2,000 per square meter (IPMS 2- office) for the building itself, R250 per square meter for the car park area and R200 per square meter for the remainder of the sites for landscaping and ancillary works. The development projects are expected to take 21 months from start to completion. Full letting of the finished building and investment sale of the freehold. Promotion costs and a contingency sum will amount to R350,000. Market rental for the completed building is estimated at R350 per square meter (net) per annum. Freehold all risk yield for investments of this type is currently 5.5%. The developer can borrow funds at 5%.

Other costs are estimated as follows:

• planning application equals to R1.25 million are required
• Architect, QS and other construction professional fees: 12% of construction costs;
• Agents and legal on letting: 10% of market rent;
• Agents and legal on investments sale: 3% of GDV;
• Site purchase costs including tax: 6%

What's will the developers risk or profit margin be if the land is purchased at the asking price? (10 Marks)