Project Feasibility Studies
Is Your Project Feasible?
This is a very important question that you need to ask yourself which we can help you with but cannot answer for you. We can assist you to answer it but we cannot do that absolutely. The reasons for this are many, some of which are summarised here as follows – more detail on each one follows below
- Financing & Equity
- Return on Investment
- End Value – Like for Like comparison
- DA or No DA – Council Conditions can make a big difference
Financing and Equity: This comes down to whether or not you are borrowing money and how much you are paying for it – your interest rate – and how much of your own funds you are putting into the project – equity / capital. These numbers can and do vary from one person to another and will therefore effect the end project cost for each. This difference may in the end be decisive as to whether or not a project is deemed to be feasible / viable / worthwhile doing. What’s more your financier / bank may have a different view to yours on what constitutes the project being ‘feasible’.
Return on Investment: Different Developers have different expectations and these can vary widely. One may be happy with a 10% return on funds invested whereas others may expect 30%. So to the fellow that’s happy with 10%, a project may be judged feasible, whereas the developer expecting 30%, the project would not be feasible. That may be simply because the 2nd developer has higher overheads that he needs to cover. Furthermore, some projects may be considered more risky than others and therefore require a higher return on investment than something easier or less risky.
Timing: Markets rise and fall and so does the cost of labour and materials as well as real estate prices. What someone paid for a townhouse or unit yesterday is no guarantee as to what it is worth or what one like it will be worth tomorrow. Similarly what it cost to build 40 metres of sewer yesterday is no guarantee that it will cost the same in 6 months time when your DA is released.
Design: Until you have a design, whether it be for a home unit or that 40 metres of sewer it cannot be accurately costed. Is the sewer passing through rock or clay? Is that unit or town house 80m2 or 95 m2 or 120m2 ? Two or three bedrooms? What are the proposed finishes and inclusions. Is it approved? How do you access the upper floors – stairs or an elevator? etc etc
End Value – Like for Like Comparisons: The ‘end value’ of the finished newly developed property will vary from one location to another, even within the same suburb in many cases. Things like views, school catchments, and busy roads can add or detract from a property’s value and speed of sale. End value is vital in determining the revenue side of your feasibility. As a developer you should be acquainted with the end values of your finished product. We do not possess the market knowledge in all the areas we operate in to be able to offer this advice; we are concerned with costs and getting the job done.
When you look at statistical data there is only so much information provided unless you conduct ‘deep searching’ which is not always available and costs more money if it is and even then you can’t always determine a property’s condition when sold if 2nd hand. Bear in mind also that market values can change and usually do, for better or worse! There’s no substitute for being personally acquainted with the market you’re dealing in.
DA or No DA: There can sometimes be nasty surprises in store when your DA Decision Notice arrives – costly surprises that you didn’t bargain on. With our knowledge and experience we can often foresee this possibility and plan around it or at least know what to do if worst fears are realised. Quite often you will see properties being offered for sale with a DA in place where the seller has realised that the conditions of the DA stop the approved project from being feasible.
Our Property Reports:
We can provide you with a ‘Project Cost Analysis’. This Report looks at costs but does not tell you if a project is feasible; that’s for you to decide. We can assist with that decision process through the report but the information we provide is an estimate though factual as it is based on experience with other similar projects, but historic, and therefore not necessarily a completely accurate reflection of future pricing or costings. Furthermore, these costs are only part of one side of a thorough feasibility equation, with revenue, i.e. sales or new valuations being the other. We are unlikely to be acquainted with these in your project’s location.
If you are asking us to provide costings on your proposed project, unless you provide comprehensive instructions with a design, preferably approved, accurate costings cannot be provided. Even then, without current quotes they can only be termed ‘estimates’.
Property development carries some risk. Some of that risk can be mitigated through good Project Management which is where we come in, but not 100%. For instance, we cannot predict what the property market might be doing in 12 months time. A developer’s profit margin is usually simply referred to as a profit margin but the more correct terminology is a “margin for risk & profit”.
If you feel that you would like to engage our services in respect to this please make contact