Terra — Key definitions
What Terra means by the terms it uses most, and where its conventions differ from other software. Numbers in square brackets refer to the sources at the end.
Gross Development Value (GDV)
The price a purchaser would pay for the completed development. For units sold individually (e.g. residential for sale), it is the sum of the sale prices. For income-producing property, it is the net rent capitalised at the Net Initial Yield (NIY), with the purchaser's costs then stripped out. This is needed because the NIY is measured on the buyer's total outlay (price plus costs), not the price alone:
GDV = Net rent ÷ NIY ÷ (1 + purchaser's costs)
Where transfer tax is tiered, as with SDLT, purchaser's costs depend on the price itself, so there is no single percentage to divide by. Terra solves for the price at which price + tax + other purchaser's costs equals the capitalised value. The capitalised rent (net rent ÷ NIY) is the buyer's total outlay, not the price. Treating it as the price overstates value.
Conventions differ. Terra follows the RICS definition: GDV is the aggregate market value of the completed development and should represent the "expected contract price", i.e. after purchaser's costs [1]. Some software, notably Argus Developer, labels the gross capitalised figure "GDV", deducts purchaser's costs, and labels the result "Net Development Value" [2][3]. If you are comparing a Terra appraisal with an Argus one, Terra's GDV corresponds to Argus's NDV.
Net Development Value (NDV)
GDV less the vendor's costs of sale, i.e. agent's and legal fees, typically 1–3% of GDV in total. It is what the developer actually receives on disposal.
This follows the RICS definition, under which NDV is GDV less the assumed costs of sale, and the net proceeds of disposal are the expected contract price less the seller's costs [1]. In Argus Developer, by contrast, sales agent and legal fees appear in the costs section as disposal costs rather than as a deduction from value [4] (see the GDV note above).
Internal Rate of Return (IRR)
Technically, the discount rate at which the net present value of a series of cash flows is zero [1]. More intuitively, it is the annual compound rate of return earned on money while it is invested: the interest rate that would grow your contributions into the distributions you receive.
Terra reports three IRRs:
- Unleveraged: the project's return, before finance
- Leveraged: the equity investor's return, after finance
- Debt: the lender's return, which is the borrower's effective cost of debt including fees
All three are calculated on monthly cash flows, with each month treated as an equal period, and annualised as (1 + monthly IRR)¹² − 1.
IRR measures the rate of return, not its size. A short project can show a high IRR on a small profit, so read it alongside profit on cost and the equity multiple.
Profit on Cost (PoC)
Profit divided by costs, as a percentage. Terra reports four versions:
| Costs exclude sales costs | Costs include sales costs | |
|---|---|---|
| Unleveraged | PoC 1 | PoC 2 |
| Leveraged (finance costs included) | PoC 3 | PoC 4 |
Within each row the profit is the same; only the denominator changes.
Excluding sales costs reflects the fact that they are deducted from sale proceeds and never need funding, so they behave as negative income rather than true cost. This is consistent with RICS, which treats sale costs as a deduction from GDV to arrive at NDV, and defines profit on value as profit over NDV [1]. Including them matches the Argus Developer presentation, where disposal costs sit within total costs [4].
The versions that exclude sales costs will always show the higher figure, so when comparing with an Argus appraisal, use PoC 2 or PoC 4.
Transfer Tax (Registration Tax)
Tax payable on the purchase of property, usually by the buyer. It is called SDLT in England and Northern Ireland, LTT in Wales and LBTT in Scotland. In the US it is generally called real estate transfer tax (sometimes deed or documentary stamp tax). It is set at state, county or city level, and the seller often pays.
There are three structures:
- Flat: one rate applied to the whole price.
- Slab: the whole price is taxed at the rate for the band it falls into. Residential SDLT worked this way until December 2014, which created sharp jumps at each threshold.
- Tiered (stepped): each slice of the price is taxed at its own rate, like income tax. Current SDLT works this way.
Unleveraged Cash Flow
The project's cash flows assuming it is funded entirely with equity: costs out and receipts in, with no debt drawdowns, interest, fees or repayments. It measures the performance of the asset itself. Also called ungeared or unlevered.
Leveraged Cash Flow
The cash flows to the equity investor once debt is used: equity contributions out and distributions in, after debt drawdowns, interest, fees and repayments. Also called geared.
Sources
- RICS, Valuation of development property, RICS guidance note, global, 1st edition (October 2019, effective 1 February 2020). Glossary and Appendix B1.1.4.
https://www.southdowns.gov.uk/wp-content/uploads/2020/11/CD9.pdf - Savills (UK) Ltd, Development Appraisal: The Mall, ARGUS Developer v6.00.008 appraisal summary (June 2017), showing GDV less purchaser's costs at 6.80% to give Net Development Value.
https://www.london.gov.uk/media/46523/download - Dixon Searle Partnership, ARGUS Developer v8.10.001 appraisal summaries (January 2019), showing GDV less purchaser's costs (effective rate 5.75%) to give Net Development Value and Net Realisation.
https://www.havant.gov.uk/media/8469/download - Grahame Park Plots 10–12 Development Appraisal, ARGUS Developer v8.00.000 appraisal summary (November 2019), showing sales agent fees within costs.
https://www.london.gov.uk/media/79748/download