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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Residual land value

What is residual land value, and how does a lender use it?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Residual land value is what a development site is worth to a developer, worked backwards from the finished scheme: the expected sales value, less the costs of building, fees, finance and a return for the developer's risk. A scheme expected to sell for US$30m, costing US$20m to deliver and needing a US$4m profit, supports a land value of US$6m. Valuers use the method for development sites, and a lender reads it against the price paid: land bought above its residual value leaves the developer less profit than the scheme was assumed to need, and small changes in sales value move the answer a long way.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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