Quantitative Analysis to get good development mix in condo project

Authors Avatar

INTRODUCTION

This report conducts a QM study on the Dakota Crescent Land parcel as tasked by Autobox Property Ltd. The site would be developed into a residential property and the project is named as Dakota Rise.

Using the quantitative analysis approach consisting of 7 steps, an optimum solution of the development mix has been worked out to optimize profits, yet cater to the market demand.

QUANTITATIVE ANALYSIS APPROACH

Step 1        Defining the Problem  

Background Information:

In a sign of relentless demand for residential properties, a land parcel at Dakota Crescent has drawn a total of 13 bids and a higher-than-expected top bid of $329 million. This 99-year leasehold site is situated next to the planned Dakota MRT station. The highest bid came from Autobox Property Ltd which offered $508 per sq ft of gross floor area (GFA). This was way above the trigger price of $130 million, (or $201 psf of GFA) for the reserve list site and it exceeds analysts' expectations of between $350 and $370 psf of GFA for the site that fronts the Geylang River. The high number of bids and high prices reflected high demand for the site.  

Problem

Autobox seeks to achieve the highest take-up rate which enables the company to yield the most return. It is currently faced with the problem of developing the optimal development mix which comprises 2-bedroom, 3-bedroom, 4-bedroom and penthouses that could optimize their profits yet cater to the market demand.

Site Details:

  1. Site Name: Dakota Crescent

  1. Site Area: 185,028 sqf

(Note: The Site Area for Dakota Crescent is retrieved from URA website under the latest land sales)

  1. Total permissible GFA = Site area x Plot ratio

          = 185,028 x 3.5

                                     = 647,599.2796 sqf

(Note: The plot ratio of 3.5 for Dakota Crescent, was determined by URA)

  1. Total Built-in area = 647,599.2796 * 0.9 = 582,839.3516 sqf

(Note: 0.9 is based on the assumption that 10% of the total GFA needs to be set aside for pavements, corridors, lift area etc)

  1. No. of blocks to be built: 2

(Note: An assumption made by the group based on the Site Area)

  1. Levels in each block: 18

(Note: Requirement by the developer, cited in Business Times article)

  1. Approximate area in each floor= (Total Built-in Area / No. Of blocks to be built)

Levels in each block

      = (582,839.3516 sqf / 2)

            18

      = 16,189.9820 sqf

  1. Floor area for 4 penthouses = Area in each floor x No. of storey x No. of block

       = 16,189.9820 x 2 x 2  

       = 64,759.928 sqf

(Note: Each penthouse occupies 2 levels. An assumption made by the group that there shall be 2 penthouses per block based on other similar developments)

  1. Remaining floor area = Total Built-in area - Floor area for penthouses

             = 582,839.3516 – 64,759.928

             = 518,079.4236 sqf

Reason for subtracting the floor area for penthouses from the total built-in area is that we assume the penthouses would be provided for exclusivity. Hence, we only need to find the optimal mix for the 2-room to 4-room apartments.

The remaining floor area of 518,079.4236 sqf is the area where the group will need to fully optimize in order to get the best development mix for maximum profit.

Step 2        Developing a Model

In order to analyse the problem, a mathematical model has been developed to represent the situation. Equations have been formed to enable the use of the Linear Programming Model to attain the optimal development mix.

To represent profit:

Profit = Revenue – land price – construction cost

Revenue = (selling price of 2-room * no. of 2-room unit sold) + (selling price of 3-room * no. of 3room unit sold) + (selling price of 4-room * no. of 4-room unit sold) + (selling price of penthouse * no. of penthouse unit sold)

Join now!

As reflected in the article from Business Times, the average selling price is approximately $1,000 to $1,050psf. Therefore, we have made use of this range to come up with the selling price of each unit type. Recognising that there will be discount given to larger unit, the proposed selling prices are as follow:

Given that area of 2 Bedroom = 950 sqf

        3 Bedroom = 1,280 sqf

                            4 Bedroom = 1,420 sqf

                               Penthouse  = 2500 sqf

(Note: The floor area ...

This is a preview of the whole essay