Investing in a Property Development project has the potential to create great outcomes and produce large profits. However, it is not without risk.
That being said, investing into a development project should not be a gamble, but a strategic decision weighed up against well-quantified risks.
The key to success in a development project is through reducing risk by undertaking a thorough due diligence prior to acquiring a property, thereby having a strong level of certainty prior to making a large financial commitment.
In this step-by-step guide, we will outline the key elements of due diligence we undertake when considering purchasing land for a development project.
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Step 1: Site Information
Start by gathering comprehensive information about the property. Review details from the agent, obtain a Land Information Memorandum (LIM), study the title, examine the property file, explore GeoMaps, and conduct a Street View analysis. A physical site visit is crucial to uncover considerations that might not be evident in documents alone.
Step 2: Planning Review
Understand the zoning and underlying controls that govern the site. Enlist the expertise of a planner to decipher how these constraints impact development possibilities. This step ensures alignment with local regulations and avoids potential pitfalls.
Step 3: Infrastructure Assessment
Assess nearby services and confirm the adequacy of existing infrastructure. Civil engineers can provide valuable insights into drainage possibilities, network pressure, and capacity. Ensuring that the site is adequately serviced is fundamental to a successful development.
Step 4: Ground Conditions
Engage a geotechnical engineer to evaluate the ground's suitability for development. This may involve desktop reviews or on-site invasive testing. Factors such as flooding, overland flows, and potential contamination must be thoroughly examined, with contamination experts brought in if necessary.
Step 5: Site Survey
Conduct a topographical survey to confirm levels, locations, and boundaries. This information is crucial for informing bulk and location designs and engineering plans.
Step 6: Specialist Consultants
Certain sites may require collaboration with various specialists, such as rock drillers, soakage testers, ecologists, and traffic engineers. Engaging with local authorities and experts ensures compliance with environmental and cultural considerations.
Step 7: Architectural Concept
Develop a bulk and location design to determine the highest and best use of the site based on planning controls and constraints. This provides a foundation for further design and feasibility assessments.
Step 8: Detailed Costing
Utilise the gathered information to create accurate project cost estimates. Quantity surveyors or contractors can assist in providing detailed cost breakdowns, aiding in financial planning.
Step 9: Market Analysis
Gain a thorough understanding of market demand, demographics, existing supply, and recent sales prices. Feedback from agents helps refine the project's revenue expectations, guiding the development strategy.
Step 10: Deal Structure & Funding Review
Evaluate the project's structure and funding requirements. Tailor the Sale and Purchase agreement to include terms and conditions that minimise costs and risks, and assess the cost of land or development finance.
Step 11: Risk Analysis
Identify key project risks and develop a mitigation plan. Ensuring that these risks are factored into the feasibility study is essential for realistic project planning.
Step 12: Financial Feasibility
Undertake a detailed assessment of costs versus value, considering various site uses. Conduct sensitivity analyses to gauge the impact of changes on project viability. Confirm a suitable level of profitability, especially if external funding is required.
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There will always be challenges with any development project, even if you work through all of these points. However, if you undertake a thorough due diligence ahead of time, you're highly unlikely to run into big surprises along the way.
Property development has risks, but it should not be treated as a gamble. Follow these steps and you will be sure to succeed with your next project.
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