Research and feasibility is all about testing the viability of the project and determining the highest and best use of the land you’re interested in. This could be as simple as adding a granny flat or additional dwelling, to building town houses or maybe even high-rise apartments. There are many considerations during this stage of the development process that can make or break a deal. Our team are here to help you along the way, so contact us for information regarding your feasibility planning.
Pre-development planning and enquiry
You need to have a good understanding of what it is you’re looking to do, and where you might be able to do it. For example, there’s no use spending money to research an industrial site if you’re looking to undertake a residential land subdivision or build residential apartments. Knowing the local environment plan, and researching zoning and land use permissions, is crucial. In fact, it’s the most important consideration. If you require advice or assistance regarding land use permissions or zoning, contact our qualified team today.
In such a highly competitive property development arena, crunching the numbers on the back of an envelope just doesn’t cut the mustard today. A successful property development – both on paper and in reality – requires a comprehensive financial feasibility analysis to be undertaken and should include:
- Acquisition costs: All costs associated with acquiring the land/development site such as stamp duty, property lawyer/conveyancing fees and tax adjustments. Also of consideration are any special reports you require, such as biodiversity/bushfire/contamination; and access to services or costs to clean up a site, for example site clearing, remediation works or knocking down existing dwellings or infrastructure.
- Cost of finance: All fees that become part of the finance costs including application fees, establishment fees, bank valuations, legal fees and brokerage fees. You should also include all ongoing interest charges starting from the first bank drawdown and for the entire life of the project.
- Council contributions and development charges: There are two main application fees paid directly to council, and include development application or planning submission fees and building permit fees. Depending on what you’re developing, you may need to pay additional fees for land subdivision, strata title and rezoning.
- Connection fees for utilities: There are fees involved for connecting to utilities including electricity, water, storm water retention, sewer, telecommunication and gas. It’s important you understand the provision and status of these services in the area you’re proposing to develop in, as it can cost a significant amount of money if these services are not readily available.
Be sure to include costs for engaging an agent to market and sell your property. Make enquires about commission rates, and verify whether the commission rate includes the cost of marketing your development.
Make sure all parties – including yourself – who are involved in the project have the relevant insurance in place. Insurance can cover things like public liability, professional indemnity, property damage, weather destruction and investors pulling their funds. Don’t leave yourself exposed; research the best insurance cover for your project.
Ensure you build in contingencies – both for time delays and financial overruns.
Goods and Services Tax (GST)
Make sure your accounting is in order. Keep cash flow healthy by filing your Business Activity Statement (BAS) and claiming your input tax credits monthly. Keep in mind that GST is payable on the sale of your development project (if you’re registered for GST), so make sure it’s accounted for in your financial model.
Develop to hold or develop to sell
Once your project is complete, your profit or income is dependent upon your decision to develop and hold, or develop and sell your project. For example, if you decide to develop and hold, you’ll need to ascertain the weekly rental amount achievable. Either way, adjust your model according to the strategy you wish to employ.
Gross Sales or GRV (Gross Realisation Value)
Gross Realisation Value (GRV) refers to the end value of the project or the total sum of cash you receive after selling your properties. Lenders will look at both the costs of the project and the gross realisation, and some lenders will lend only a percentage against the gross realisation. The end sale value of the project is ascertained by the bank’s/commercial valuation.
Getting your feasibility analysis right is critical to the success of your project and ultimately your profit. Although you may not have all the exact information, the analysis should give you a good indication about whether the numbers are going to stack up. If you’d like expert assistance about determining the viability of your proposed development project, contact us today.