Define property development
Process that involves changing or intensifying the use of land to produce buildings.
explain the 8 steps of property development
- Initiation
- Investigation and analysis of viability
- Acquisition (soft/hard deposit)
- Design and costing
- Consent and permission
- Commitment
- Implementation
- Leasing/managing/disposal
IIADCCIL
*This process does not have to be in the order above.
Explain the initiation stage
The first stage of the development process
Either 2 events occur:
- A parcel of land is considered suitable for a different or more intensive use than it’s existing
- There is an increased level of demand for a particular land use, which in turn leads to a search for a suitable site
explain the investigation and analysis of viability
•General and specific market research
•Financial feasibility
•Information is costly. So, will you just ignore this stage?
•Some assumptions are to be incorporated, but not too many.
•Distinction between private and PPP projects
•Failing to pass the feasibility test today does not mean that the plan is not feasible tomorrow.
•Feasibility test MUST be conducted before committing to the development.
•The viability analysis must be constantly re-evaluated and monitored throughout the process of undertaking the development.
errors or misjudgments will often have an adverse affect on the financial viability of each development phase
least amount of assumptions as possible
Explain the process of aquisition
Preparation prior to acquisition should include the following stages, ensuring all issues have been addressed:
Legal investigation: • Type of ownership • Tenure of the site • Nature of the owners (background) • Easement/encumbrances • Liens on the title (delays could become costly)
Physical inspection:
onsite physical inspection of all structural improvements if any is essential
• Load-bearing capacity (foundation)
• Drainage
• Access (ingress/egress)
• Site improvement (gas, electricity, water, sewer, etc.)
Finance:
• Unless the developer is acquiring the land with 100% equity, the placement of loan is inevitable.
• Typical types of finance: long-term and short-term finance.
• Short-term finance: required by the developer costs expended before and during the development
• Long-term finance: needed to cover the cost associated with retaining ownership of the development after completion
explain the design and costing stage
• Consideration of basic aspect of design starts from the preliminary stages. e.g. estimating cost outcomes of different designs and styles
• The developer may have detailed knowledge of what design is required. -Design depends on: type of tenant, location, purchaser, etc.
• The preliminary design stage should be relatively brief: minimizing the cost before full commitment.
• It should be acknowledged that modification of design can’t be made after a certain stage (full commitment). Even if possible, it would be quite costly.
design increases with progression of development
Explain consent and permission
• Every proposed development requires planning consent or permission. (e.g. overlays + zoning)
• Outline planning permission: used early on in the development stage to establish whether or not the proposed development is likely to be approved.
• Full (detailed) application: Comprehensive application including details of the development plan.
developer may enter into a planning agreement contract between parties
may require detailed knowledge of policies, legislation and local knowledge
explain the commitment stage
• Proper Due Diligence checks should be undertaken before full commitment.
• It is much less costly to modify before full commitment.
• Once everything is clear after the initial due diligence test, the next stage is for all the parties to sign contracts for the development
now is the time to re-evaluate all the factors that affect the success of the development e.g. changes to the economy may reduce demand
explain the implementation stage
• Once all the raw materials are in place the implementation stage can begin.
• The aim of the implementation stage is to ensure that the development can be completed within
A) time-frame
B) Financial budget
Completion can be delayed to some extent due to unforeseen issues
(Natural disaster, weather condition, material procurement, etc.) may employ property manager to avoid certain events
developer must seek to reduce costs while maximising the benefits to the final user
Explain the leasing / managing / disposal stage
• It is common to have a pre-lease agreement with potential tenants.
• Lenders might require a set level of pre-commitment to the total scheme (30%-70%) before a lender will commit to convert from construction loan to permanent loan.
• What happens if developer fails to find tenants/buyers?
• Financial risk due to holding costs with no income.
• Outstanding balance of construction loan and incurring interest
• Developers are responsible for maintenance after completion.
decision must be reached as to when to sell or lease
ideally suitable tenants should be notified promptly before the completion of the building to avoid financial strain + issues (holding costs)
at the start of the project the developer must decide what the final intention will be regarding the tenure or ownership of the completed project
explain the main developers in the development process
Landowners Developers Public sector and government agencies Planners Financial institutions and lenders Contractors Real estate agents Professional team Objectors Occupiers
explain the stakeholder of land owner and their categories
Categories of landownership:
- Traditional landowners: the Crown Estate, the Church, aristocracy, etc. have interest in land in terms of area and capital value
- Corporate landowners: Headquarter, manufacturing facilities, warehouses, etc. usually to help undertake production or service and maximise ROI
- Financial landowners: pension funds, insurance companies, hedge funds view as an investment treat like stock and motivated by financial gain thereby keen to undertake development
- If more than one landowners are involved in a project, establishing a partnership can be a solution.
explain developers
• From one single person to multi-national developers
• Exit plan: trader or investor
• Majority od developers are trader
1. Final goal is to sell the completed project
2. Most of risk disappears after the property is sold
• Some developers have sufficient financial resources to own the property after completion
explain public sector and government agencies
- Public sectors can be directly involved when
- The project is for their own use or
- The project is for public interest. (i.e. infrastructure)
- PPP (public-private partnership)
- Joint development with public and private sector
- long leasehold to private developers
explain planners
- Politicians: responsible for approval of the development plans in accordance with legislation, policy, etc.
- Professionals: responsible for advising the politicians and administering the system and its operation
- Successful development is achieved by prior consultation and negotiation with government
- Planning gain (a.k.a. planning agreement)
- providing infrastructure or financial contribution
Explain financial institutions and leaders
- It is quite rare for a development company to have 100% fund from its own equity.
- Financial institution or financial intermediaries need to supply the fund.
- General type of financing source by duration
- Short-term finance (development finance, construction loan): to cover the development and construction cost
- Long-term finance (funding, permanent loan): to cover the cost of retaining ownership of the completed development as an investment
explain contractors
- Those who physically construct the development scheme.
- It can be in-hours contractors or outsourced contractors.
- There is also a considerable variety of contractual systems in order to ensure the timely completion
explain real estate agents
- Include commercial, residential or realtors
- Skilled at networking and act as a bridge between the developers and the tenant (or buyer)
- The agent’s motivation is to make a financial profit from the fees from their clients (developer or tenants, investors)
explain professional teams
- Planning consultants
- Market research analysis / economists - employed at the evaluation stage to provide a detailed market analysis (demand & supply)
- Architects
- Employed to design new buildings or refurbishment of existing buildings.
- Good project should have a balance between
- a) Valued design and
- b) Cost-effective design
- Quantity surveyors
- Building accountants who advise the developer on the costs of the total building contracts and associated cost
- Engineers: advisors on the structural elements
- Project mangers
- Manage the professional team and the building contract.
- Solicitors: handles legal issues and application throughout the development process
- Accountants: handles taxation issues
explain objectors
• Objectors have the right to provide an ‘input’ into the feasibility of the proposed plan.
Two types of objectors
1. Self-interested neighbours (amateurs): usually live near to the project site. To protect their own rights. “not in my backyard”
- Professional objectors: well organized and well informed. Have a good knowledge of the planning and development. Act at local level or at national level.
explain ‘understanding the market’
It is almost impossible for developers to control the market. Especially fluctuation in global financial market is not easy to predict.
Thus, solid understanding on economy is an essential part of successful development.
Local Economy
National Economy
Global Economy
supply and demand considerations pg.33
