Residual land value for land that isn't rezoned yet

Residual land value is what's left for the land once you take your costs and your profit out of what the finished lots will sell for. The basic formula is: sales, less costs, less margin, equals the most you can pay for the land. For land that isn't rezoned yet you add two more steps: bring that figure back to today's money, then weigh it by the chance the rezoning happens, with rural value if it doesn't.

What is the residual land value formula?

The plain version is:

Researchers at the Reserve Bank put it the same way: expected sales minus construction and related costs. It's the standard way the industry works out what a site is worth before anything is built.

There's one catch that trips people up. Developers usually set their margin as a share of total cost, and the land is part of the cost. So you can't just take 20% off the sales. Divide the sales by one plus the margin first, then take off the other costs:

A quick example with round numbers. Lots sell for $1.2m in total. You want 20% on cost, so the total you can spend is $1.2m ÷ 1.2 = $1m. If building costs $600,000, the land can take the other $400,000. Check it: $600,000 + $400,000 = $1m of cost, and $1.2m of sales is a 20% margin on that.

What are the inputs, and where do I get them?

On contributions: in Greater Sydney, the Central Coast, Illawarra Shoalhaven and the Lower Hunter and Greater Newcastle, the state's Housing and Productivity Contribution applies on top of council contributions. From 1 October 2026 its base rate for residential subdivision is $13,522.84 per new dwelling lot in Greater Sydney and $9,015.23 in the other three regions. It's indexed every quarter, so check the current rate.

How do you work it out for land that isn't rezoned yet?

The residual above tells you what the land is worth on the day it's rezoned. You're buying it now. So the full version is:

"Years" runs to when the lots are sold, not just to the rezoning, because that's when the money comes in. Holding and study costs are what you spend while you wait (rates, upkeep, the studies a planning proposal needs), brought back to today's money too.

On our sample site, Ridgeback Creek (made up, but with the real numbers our engine gives), that comes out like this. We walk through each line and what it means in how englobo land is valued.

What moves the answer most?

We ran the sample site through the same sum, changing one input at a time and keeping the rest at the report's starting assumptions.

Lot prices win. A 10% drop in price takes about a quarter off the value of the land once rezoned. That's because the land is the leftover. On the sample site it's about a third of sales, so every dollar that comes off the sales comes straight off a much smaller number.

The chance of rezoning and the discount rate come next, and they're the two inputs you can't look up. They're your judgement. Treat them with the most care, and test a range, not one number.

Time matters more than most people expect. A rezoning that runs two years late, or a market that takes 60 lots a year instead of 90, costs the same $1.5m here. Both just push the money further away.

The lot count is the odd one out. Fewer lots means less to sell, but it also means you sell out a year sooner, and that earlier money is worth more. On this site the two nearly cancel out. Don't count on that for yours. A big drop in lots, say from a creek corridor you didn't spot, hurts a lot more than 37 lots does here.

What mistakes do people make?

• Counting lots on the whole site area instead of the land you can build on. Our guide to lot yield shows why that's the biggest error of all.
• Taking the margin off sales when it should be on cost, or the other way round. Pick one and stick with it.
• Forgetting lead-in servicing. On the sample site it's $4.5m. On a site far from a sewer it can be much more.
• Stopping at the residual and treating rezoning as certain. That's the brochure number.
• Discounting only to the rezoning date. You don't get paid until the lots sell.

The Reserve Bank paper also notes that site valuations done earlier, before approval, carry more uncertainty and delay, so they use higher margins and give lower land values. That's the same idea as the chance and the discount above, built into the margin instead. Either way works. Just don't do both, or you'll count the risk twice.

Sources: The Apartment Shortage, Appendix B: Comparison to Residual Land Valuations (Keaton Jenner and Peter Tulip, Reserve Bank of Australia, RDP 2020-04, August 2020); Housing and Productivity Contribution (NSW Department of Planning, Housing and Infrastructure, rates at 1 October 2026, checked 18 October 2026). The sample site and its figures are made up and use our report's starting assumptions; the sensitivity rows are the same sum with one input changed.