Working Out Development Feasibility
Property development projects require significant preparation times that may last for months. Along with financing, sourcing a site, and getting together a team to undertake the project, development feasibility is one of the most important – if not the most important – components in the preparation phase. Using property valuation software can assist with ensuring that your feasibility study is accurate and thorough.
Why are Development Feasibilities Necessary?
Detailed feasibility studies function like business plans, allowing investors to map out the numbers and strategy for the development before making any outlays. A detailed development feasibility study helps identify any risk or problems in the project.
As much as it is a planning tool, a development feasibility acts as a risk management tool and a preview of the project. This preview that outlines the budget, costs, expected profit margins and how successful and profitable the development will likely be.
No investor would put their money into a business they know absolutely nothing about; in the same way, developers need to map out all the details of the project and assess its workability before committing their resources and undertaking the project.
Core Elements of Development Feasibility Studies
Adequate market research allows developers to access tenant or buyer demand for the area and type of property. If a site looking promising, developers will usually then consider the best use for the land. What can be built upon the existing property for optimising sales results and what are the local council building restrictions?
Pertinent questions include whether the price range, the location, the local services and amenities and other features of the property to be developed will attract a sufficient number of buyers and/or tenants.
Some developers will approach real estate agents or private research companies to obtain realistic estimate or quotes in writing. These documents will come in useful later if the developer proceeds with the project and seeks financing.
At some stage in determining the feasibility developers will consult with their team for assistance with specialist issues. Typically, the team will comprise of lawyers, town planning consultants, architects or draftspersons, engineers, surveyors and builders.
The purpose of this stage is to get their opinions on the site and to clear up property law issues (e.g. easements), getting government planning restrictions and approvals, and conduct the requisite property checks. Architects can assist with an initial concept scheme, which can help the developer ascertain the size of the project.
At some stage during the development feasibility study, cost and sale estimates will need to be finalised to a good degree of accuracy. Using accurate estimates help reduce risk or budget blowouts. In this way, it’s important for property developers to obtain figures that are as accurate as possible. The range of estimates should also be as complete as possible. Leaving one or two elements out can distort the outcome of the feasibility assessment.
Some of the key cost estimates to finalise include development approval costs, operational expenses, acquisition expenses, title and sealing, and costs of construction.
Analysis of Data
Analysis of cost estimates and data facilitates developers with a clear picture of the development project. Most developers will use real estate development software that generate in-depth feasibility and valuation reports and conduct automatic feasibility testing. These program allow users to conduct different scenario analyses, calculate key performance indicators, and accurately appraise the financial potential of projects.