A developer is proposing to erect a block of six lock-up shops with two floors of offices above them. The
shops are likely to let at an average annual rent of $600/m2 and the offices at $300/m2. The net floor
areas will be 500 m2 for the shops and 900 m2 for the offices. Circulation areas will amount to about ten
percent of total floor area and will remain under the control of the landlord, whose annual outgoings are
estimated at 25% of income. The developer requires a 12% profit of the gross development value. The
freehold site is available at a purchase price of $260 000 and site works are estimated to cost $30 000.
The rate of return in this area for similar developments is around 7%. The contract period is likely to be
one year and finance is available at 11% of interest. Legal, agency and advertising costs are likely to be
about 3% of gross development value. Determine the allowable building cost, assuming professional
fees of 12% of the building cost.
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