Why market growth shouldn’t be the “upside” in a development appraisal
Market growth is not value creation. It’s an external macro factor that you don’t control. A robust development appraisal should stand on its own without assuming rising prices, that’s why we do not include this as a standard.
Here’s why:
- You can’t underwrite what you don’t control
Planning gain, design efficiency, construction costs, procurement, phasing, unit mix, and exit strategy—these are levers a developer can pull. Market appreciation isn’t. If the deal only works because prices are assumed to rise, it’s not a strong deal. - Cyclical markets magnify the risk
Dubai is a great example of a market with strong long-term fundamentals but pronounced cycles. Growth years are often followed by flat or corrective periods. Including growth in the appraisal removes your margin of safety exactly when you need it most. - Growth masks weak fundamentals
Assumed price inflation can hide issues such as:- Over-optimistic GDVs
- Thin construction contingencies
- Inefficient layouts or product mismatch
- Poor land pricing
If market growth is required to make the IRR work, the fundamentals aren’t strong enough.
Upside should come from execution, not hope.
- Buying land well
- Delivering a high-quality product
- Improving practicality and saleability
- Managing cost and programme risk
- Structuring exits intelligently
If the market grows on top of that? That’s a bonus, not the base case.
Our bottom line:
A good development works in today’s market.
A great development survives a flat one.
Market growth is a bonus.
