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Budding Developers Urged to Cleverly Approach Property Plans
Date Published: 15/10/2010
With predictions Perth house prices could gain up to 20 percent in the next three years, budding property developers are expected to come out of the woodwork again.
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Scott Davison, director of business development for leading WA property and construction company Pindan – WA’s largest multi-unit builder* – said he believed the recent BIS Shrapnel survey would instill a new level of confidence in the market.
“The research will be a signal to many fledgling developers that the time is ripe to take their ideas off hold and put their property development plans into action,” he said.
“After a period of uncertainty, the market is starting to see some positive signs and we anticipate that budding developers will come back into the market.”
But Mr Davison advised those who had limited knowledge of the processes, costs and risks involved to seek an experienced partner and work with a builder from the start to ensure construction considerations were part of the design phase.
“If you’re keen to pursue property development, but aren’t quite sure how to go about it, teaming up with a development manager and construction group who know the property market intimately and who have a proven track record is the safest bet,” he said.
“Fledgling developers can gain the benefit of decades of experience by going to experts whocan provide crucial advice from the initial stages through to construction, completion and settlements.
“Doing the hard yards early and planning carefully can be the difference between counting your profits or making costly mistakes that can seriously erode that margin.
“The most common error we see with developers who approach us is that their designs are ‘over-designed’ with features that, whilst they may be striking, can dramatically blow out the cost of a project so blend good designs with buildability at the outset is a must so that the project can return a profit.”
Mr Davison suggested that, prior to acquiring a piece of land, new or young developers should do as much investigative work as possible, including the following:
1. Check the zoning with council as it will determine what you can do with the land, and consider the best product solutions for the development.
2. Do your research to determine the projected sales prices for the completed development then do the sums and decide, ‘is it going to be worth it?’
3. Consider if you have enough cash or equity to undertake the development and hold it until sales are achieved and settled.
4. Consider what is a realistic time frame from land acquisition to settlement of the developed properties.
5. Consider costs such as marketing and how much you should realistically allow, and make sure that you allow for all items in your feasibility.
6. Compare and consider the Internal Rate of Return (IRR) of developing house and land packages versus apartments – the gross margin on apartments could be higher, but those developments require significantly higher holding and finance costs and are a lot riskier.
7. Ensure you allowed reasonable contingencies in time, costs and revenues to ensure a feasible outcome can still be achieved when the unforeseen occurs.
*As ranked in the Housing Industry Association’s most recently-released annual Housing 100 report.
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