Johannesburg, 27 Jul 2022
Any project has a higher chance of succeeding if it passes its feasibility check and analysis. It is an important step in developing any project in any industry. However, the property development and investment world relies on feasibility analysis of all projects to determine if the land or property project is worth the investments made.
In this article, we will break down feasibility studies in the property development sector, their importance and how you can ensure you gain an understanding of each factor when conducting a feasibility study.
Feasibility studies. The what and why
A feasibility study is an assessment of the practicality of a proposed plan or project. A feasibility study analyses the viability of a project to determine whether the project or venture is likely to succeed. The study is also designed to identify potential issues and problems that could arise from pursuing the project. A feasibility study also determines threats, potential risks and problems that may occur, as well as include any significant changes that occurred (ie, acquisitions). A real estate development feasibility study assesses a proposed plan to determine whether it is likely to be a success. Every successful developer knows that a development feasibility study is never a once-off set-and-forget exercise. Instead, it is an evolutionary process. Rarely does an initial feasibility study mirror the outcome.
To uncover deeper details regarding a project and to check its feasibility, the feasibility study needs to be broken down into the three main stages, namely:
- High-level feasibility: This is the very first (or preliminary) step in the feasibility study. Here you will explore all the ideas, look for the pros and cons involved, make assumptions and draw hypotheses based on supply and demand guesses.
- Static feasibility: The assumptions you made during the high-level feasibility study will become grounded in more solid facts, and you’ll have a clear understanding of the highest and best use for the site/building. There is still a bit of guesswork – particularly relating to revenue, time and cost – at this stage of feasibility, so you shouldn’t make a purchasing decision just yet.
- Cashflow feasibility: This is the stage where you get down to the granular detail, especially around project financing and funding requirements. As you negotiate a price, you need to understand how much money will go out and how much will come in. Check and challenge all your assumptions. Do the revenue, time and cost numbers still stack up?
Determining whether a project “stacks up” can take considerable time and effort – but a real estate development feasibility study gives you confidence in your decisions and determines whether your development dream will be a financial success or a failure.
Property remains a growing and interesting industry, and as an investor or developer, it is much better to invest in a feasibility study to determine whether a property development project will work, rather than spend large sums of money on a real estate project you know little about. A feasibility study helps determine all aspects of the project, and below is how you can conduct one. Remember, each study is different and each feasibility study needs to cater to the specific project, so no two feasibility studies will be the same, but these are the main components:
- Research through experts
Here is where you collect information from local stakeholders regarding the location this real estate investment will be in. You can do so through interviews via phone or video chat and record these conversations as part of your study. The interviewees can be local councillors, economists, town/city planners and entrepreneurs who live within the proposed property’s geographic area.
- Trends and market analysis
You need great return on investment, otherwise you would not be involved in the property development or real estate investment, so who you are selling to is important. You need to analyse your demographic and compile a detailed market research report that highlights what your target market will be interested in on the property based on their age, lifestyle, affordability, coupled with the space and area in which the property is located. As mentioned, every feasibility study will be different, so depending on the kind of real estate project you’re doing, your target market/audience won’t always be fully the same.
- Competitive assessment
It is almost impossible to do business without researching what your competitors are doing and not doing. This helps in a feasibility study as it will help with determining whether the property development or real estate project will succeed. It is also important to check if you have any huge competition in your property development project as some aspects of it are more collaborative than competitive. An assessment will help you identify which is which.
Once you have completed your feasibility study, you are able to use your findings to make an informed decision on the property investment you are looking into.
How to enter the property industry
If you are looking to develop an understanding of a combination of property disciplines, including property development, investment and management, then an online property development and investment course is the right first step for you. If you are a budding property entrepreneur, an investor in the real estate industry or a property developer, this course is also perfect for you.
Feasibility in the property development sector is important because it saves a lot of investors and developers time and money and helps them decide on beneficial property investments. If you feel like the tips shared in this article resonate with you, consider an online property development and investment course.