What Is Feasibility & Why Is It Important In Property Development?
Feasibility as it relates to property development is conducting an analysis of the viability of a project. The essential purpose of a feasibility study is to determine if a project is viable and whether or not you should proceed. The different aspects of the feasibility process are designed to help answer the question “Is this project worth developing?”
When looking to develop a project you will usually be in one of 3 spaces:
- • We have a specific idea of what we want to do and just need to find out if the site limitations support this idea.
- • We have some ideas of what we would like to do to develop the site but don’t know if we can develop or if we do, will it be worthwhile.
- • We have no idea how the property can be developed, but would like to explore its potential.
Whichever space you are in there will be a specific feasibility process that will address the requirements of the project.
How does feasibility work?
There are a number of different aspects to consider when determining the overall feasibility of a project. There are three distinct, though interrelated, components to a project feasibility.
The purpose of site feasibility is to assess the physical properties, opportunities and limitations of the proposed site.
Planning feasibility assesses the planning laws and guidelines governing the proposed site. Its purpose is to outline what you can use the property for and the scope of developing the property.
The market feasibility’s function is to assess the financial viability of a project to see if the development project is likely to yield a suitable outcome. It should take into account the preliminary market research, determining the target demographic(s), development mix and sales & marketing plan.
What comes after next after the initial feasibility?
Understanding site capacity
Site capacity is the maximum potential that a site can be developed to. This can be defined as an area (square metres), a height and/or a number of dwellings on a specific site.
Determining the development capacity for a specific site is never black and white, but there will be a number of methodologies and factors that need to be taken into consideration to provide an indication of site capacity. As each project will need to go through the planning process they will be considered by council on their individual merits, not just a hard and fast planning rule.
Some factors that will need to be considered in determining site capacity are:
• Zone guidelines
• Overlay requirements
• Neighbourhood character policy
• Vehicular circulation allowance
• Site specific factors (e.g. Trees, fall, boundary conditions etc.)
• Car accommodation
Can we build what we want? If not, what can we build?
We often find that clients will have a specific idea of how they would like to develop their site. They may have already done a substantial amount of market feasibility and know what their likely development costs are and what they would likely receive for rental or sales and need to test if that idea is achievable in line with planning requirements. Basically they know what they need to develop and what they need to achieve for it to be a viable project. They need assistance to see if the site and planning feasibility aspects align with the market expectations.
Site and planning feasibility will quickly highlight the practical and potential aspects of site development. This can be tested against a specific developed marketing feasibility or can be used to explore the viability of the project.
How do I get the most profit/value out of my project?
Often there are a number of goals and objectives that clients are wanting to achieve with their project. It is critical to understand and clarify these goals and objectives in the initial stages of feasibility as this will determine the course that the project sets out on.
Often a number of these goals/objectives can be ‘competing goals’ which means you would like to achieve both but in relation to your site these goals/objectives are directly at odds.
Prioritising these goals and assessing them along the project is critical. Issues with site constraints, construction, planning constraints, budget may show up during the process that will test these goals. Therefore it is vital to clarify and on-goingly assess the project to keep it on course.