EQUITY MODELLING AND THE REST Ricky Prota November 29, 2023


equity modelling

Equity modelling is not an exact science, and there are many tangles that you can find yourself in when trying to navigate new tenure types. In this webinar Chris Wandel is joined by SDS consultants John Stevens and Andrew Markham, as well as technical manager Paul Kristensen. This panel of experts spend a great deal of time modelling tenure types for SDS customers on ProVal, and will be demonstrating how best to achieve this for our Zoom audience.

New Tenure Types – John Stevens

To begin, it is worth understanding how new tenure types can be added into the SDS ProVal software. John dedicates a large portion of his time to reviewing customer assumptions, and wants to make clear that although some tenure types are held within ‘Templates’, there are a great many more held in the ‘Dwelling Types Library’. ‘Templates’ hold data such as your interest rates, inflation, and your fees, whereas your management and maintenance allowances, and the percentage of sale are attached to the unit types in the library. So when new tenures come into the sector customers need to be adding this information to their unit library as well as to the template information. These two sections in ProVal are complementary and will aid customers in their equity modelling.

If you would like more information about the ‘Dwelling Types Library’ on ProVal, or to sign up for some training, please contact our training department here.

proval viability software

Moving onto the new tenure types themselves, John has coined the term “butterfly tenures” to refer to tenure types that start out as one thing, and eventually blossom into something else. ‘Rent to Homebuy’ is a clear example of this, as it begins life as an intermediate rented property and transitions to become shared ownership tenure. At the beginning of its life it may need management and maintenance, but as it becomes the “butterfly” it will have less maintenance attached to it. These “butterfly tenures” are happening more frequently in the affordable housing sector, for example, in the new version of shared ownership developers need to fulfil 10 years of responsive repairs before the property can become self-sufficient and the responsibility of the tenants.

One of the newest tenure types is First Homes. First Homes is a discounted market sale house which will make up 25% of any affordable housing required on a Section 106 site. The property must be an appropriate price for local first-time buyers, and as such price caps do apply. Buyers may be assessed through a local connection test, which will determine whether they are a key worker for their local area, and purchasers must have at least a 50% mortgage to be eligible. LPAs are able to set the eligibility criteria, may alter the discount being applied to First Home developments, and lower the price caps on properties to suit their local market. Developers will take the hit for this discount when the property is sold. As we move closer to First Homes entering the market, there is a great deal of pressure on LPAs to set the rules for how First Homes will function within their districts.

New local/neighbourhood development plans should be taking First Homes into account from 28 June 2021. Sites are exempt if they had obtained planning permission before 28 December.

John recommends that customers go to Own Your Home, which is a government owned website, to find out more about the new tenure types. It is a valuable introduction to the various government schemes including, for example, the self-build register.

Finally, John offers a helpful tip for ProVal customers dealing with Shared Ownership service charges and management. By looking at the Shared Ownership Model Lease, it is clear that the Service Provision will include ‘all expenditure reasonably incurred by the Landlord in connection with the repair, management, maintenance and provision of services for the Building’. In other words, it states that management costs should be included in the service costs. So if ProVal customers move their management costs from the management row in ProVal to the service costs row, not only are you following government guidelines, but it actually improves the NPV of that tenure.

ProVal Demonstration

Andrew kicks off the modelling portion of this webinar by looking at a Shared Ownership scheme on ProVal. Andrew recommends that when customers are modelling a scheme they begin with only one unit, so that they can carefully track when revenue hits the cash flow, and make amendments without becoming lost in the data. Also, typically the administrator for a company would have locked-in the costs for schemes within ProVal, and so it is important to do this equity modelling outside of normal practice, in a Testing folder for example.

Follow along with the webinar to learn more about:

  • Good practice for ‘Current Market Value’, CMV.
  • Modelling mixed tenure types in ProVal.
  • Staircase modelling and when this should be applied.
  • Maintenance and service costs.
  • How to navigate ProVal appraisals.
  • How to interpret scheme results.
  • Good practice for outright sale units and managing sales discounts.
  • Looking at First Homes within ProVal.
  • Looking at Rent to Buy within ProVal.

SDS ProVal Updates – Single Cash Flow

SDS has recently released a new update for ProVal that changes the basis on which ProVal can calculate results such as IRR, NPV and loan repayment. One of the reasons for this is that many of its customers are requiring a more private sector approach to appraising sales schemes. SDS has responded to this by combining the development and long-term cashflows in ProVal into one cashflow. This makes it possible to calculate any results from the first event of the development phase, or milestone of your choice, which makes results more accurate for sales schemes in particular. In addition, this update allows customers to analyse the cashflow in their appraisals monthly, quarterly and annually, which provides more detail for the long term revenue income and costs. Moreover, the cashflow can be filtered for each tenure and unit type in the appraisal; therefore, if your finance team wants to see what each scheme/tenure/unit is doing at different points in its lifetime, the single-cashflow system allows this to happen.

SDS Cloud – Updates

The software developers at SDS are working hard to move ProVal onto the new SDS Cloud. Get in contact with our support team if you have any thoughts on how to improve ProVal as it moves onto the Cloud.

Thank you

Finally, we would like to say a big thank you to Chris Wandel. This was Chris’s final webinar with SDS before he moves onto his new role, and he has done a fantastic job of organising these webinars over the last two years.

Based on the webinar Equity Modelling and the Rest, 20/07/22.

For more content like this, please visit our webinars page.

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