Gross Realisation Value (GRV)

Gross Realisation Value (GRV) refers to a development project’s estimated total sale value once fully completed and sold in the open market.

Why is GRV important?

GRV is critical in property development as it helps developers, investors and lenders understand the potential profitability of a project. They may use CRV to assess the following:

• Feasibility: GRV helps determine whether a project is financially viable by comparing it to the development costs.
• Financing: Lenders use GRV to evaluate the amount of finance they are willing to provide for a project. The higher the GRV, the more confident lenders are in the project’sproject’s potential success.
• Profit margin: Developers can calculate their expected profit by subtracting the total development costs from the GRV.

How is GRV calculated?

To calculate GRV, you need to estimate the market value of each unit or property in the development and then add up these values. This estimate is usually based on current market conditions, which include recent sales prices of similar properties in the area. These sales provide a benchmark for estimating the value of the properties in the development and the overall demand for similar properties in the market.

Gross Realisation Value in practice

Let’s say a developer is working on a project to build 10 residential units. Each unit is estimated to sell for $800,000 upon completion. The Gross Realisation Value for the project would be:

10 units x $800,000 = $8,000,000

This means the total potential revenue from selling all ten units is $8 million. The developer can then use this GRV estimate to secure financing and evaluate the project’s profitability.

Factors that affect GRV

Several factors influence the accuracy of GRV estimates, including:

• Market conditions: Fluctuations in the real estate market, including supply and demand, can affect property prices and, consequently, the GRV.
• Location: Properties in desirable locations tend to have higher values, directly impacting the GRV.
• Property type and size: Larger properties or those with unique features may have higher sale values.
• Economic factors: Interest rates, inflation, and overall economic health can influence property values and GRV.

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Understanding the Gross Realisation Value is vital if you’re involved in property development or real estate investment. At Funding, we provide customised financial solutions to support you in bringing your project to fruition. Discover how our building loans can assist you in reaching your development objectives.

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