Assessing Your Property Development Feasibility

Assessing Your Property Development Feasibility

  29 Dec 2023

In this article, I talk us through the feasibility of a development project and whether or not to pursue it.

Undertaking a property development requires many months of preparation before you actually get to see your hard labour bear any fruit.

As we’ve already covered in previous articles in this series, there’s the groundwork of obtaining finance, sourcing and securing the perfect site and rounding up your “A” team of professionals to help you throughout the journey.

Perhaps the most important element of all the preliminary work you must do with any property development project is the feasibility study or feasibility studies (as you will have to do a number of them).

In this instalment of our series on property development, I will explain how to conduct a reliable feasibility study and why it is critical to do so with as much accuracy and forward planning as possible.

Why do I need a feasibility study?

You wouldn’t start a new business venture without a business plan, so why would you consider any type of property development without first weighing up the pros and cons, crunching the numbers to ensure a tidy profit can be gained at the end and mapping out a complete plan of attack? 

A detailed feasibility study will essentially tell you whether your proposed development will be an astounding success or a dreadful flop.

It will highlight any potential problems or risks you may face along the way and whether those issues might make or break the entire project, such as; the suitability of the site and what you can actually build on it, planning approval, dealing with the local council, addressing objections from neighbours, budget overruns and so forth.

The bottom line is you have to know whether the numbers on your development add up.

What are the projected costs and what type of profit margin can you expect to achieve at the end of the day?

Without a clear understanding of whether or not your intended development is feasible from the outset – that is, can it really make you a decent return upon completion (let’s face it – that’s what any type of property investment is all about), there is really no point proceeding to the next stage.

So exactly how do you conduct a proper and reliable feasibility study?

Conducting your feasibility study

Making sure your project is viable actually involves conducting a number of feasibility studies along the way.

Initially, upon sourcing your potential development site and checking it for zoning and other issues, you have to check the feasibility of developing it.

This is the first of what will probably be many feasibility studies throughout the life of the project.

As explained in the previous article in this series on site selection, this involves doing a preliminary set of figures to check that it is worth pursuing to the next level.

These figures are often as simple as scribbles on a piece of paper before I get into more detailed computer modelling.

A formal definition of feasibility is often quoted as:

“A real estate project is feasible where the real estate analyst determines that there is a reasonable likelihood of satisfying explicit objectives when a selected course of action is tested for fit to a context of specific constraints” – James A Graaskamp; A Rational Approach to Feasibility Analysis.

In other words, a feasibility study is a lot more than just analysing some figures. 

It’s about checking out all aspects of the site to ensure a successful outcome.

Feasibility in essence means that the project will be commercially viable.

Don’t make the mistake of assuming that you can rush a preliminary feasibility study along, or it doesn’t matter if you miss one or two elements of the proposed development.

The reality is your preliminary feasibility should be sufficiently accurate, even though you don’t want to waste a lot of time and money putting it together.

At this point, you will need to have fairly exacting cost estimates for things like;

  • Acquisition outlays
  • Development Approval
  • Operational Works
  • Construction
  • Sealing & Titles
  • Selling Costs

Remember that making a mistake at this stage can throw out all of your pre-planning work and cost you substantially in the long run.

Due diligence feasibility research

If you decide that a potential development site is worth exploring further, you then need to examine the highest and best use of the land. Due diligence feasibility research

What can you do with the site?

What can you build on it and how can you improve on it to make a profit?

For this step, you should approach the local council and find out what type of development is allowed according to the property’s zoning and the type of site coverage that’s possible, feasible and profitable.

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