Key Factors in Successful Medium Density Development
Step One – Pre-Planning Phase and Choice of Site
Before a Planning Application proceeds site choice and pricing is critical. There may be a number of sites from which to choose but critical matters to be researched prior to selection are;
- Overlay controls and recently introduced residential zones may restrict or promote certain height limits and site density achievable
- If multiple storeys; are views restricted or do they have potential to be restricted – this is important in areas where views are critical to value achievable
- Proximity to public transport and shops – ideally within 500 metres.
Step Two – Planning Phase
So that the end product and specifications dovetail into the market, profile of the surrounding locality is important to frame selection criteria. In this regard the key to the success of the project must include market research into:
- Sales Rates
- Buyer Profiles
While there are other elements critical in marketing, it is essential that these factors are realised before Planning Application and Plans are endorsed. An inappropriate over development with a difficult to sell product or under development may result in losses and failure of project.
Step Three – Marketing
One of the keys to a successful finance application is presales which in most cases are an essential part of financiers requirements.
Assuming that all points in item 2 above are identified selection of an agent is key to a successful sales campaign. A display suite is recommended for larger projects.
Step Four – Feasibility for Finance Approval
The key to a financially viable project meeting credit criteria for approval is largely based on the following points successfully being achieved.
- Pricing – Must be realistically priced to achieve a sales rate required to meet critical breakeven points
- GST – Must be factored into feasibility using either 1. Margin Scheme or 2. Full Tax remittance
- Build Cost – This is one of the most influential variables that can either make a deal ‘sink’ or ‘swim’.
The project must include adequate costs to complete and financers will need to ensure that this amount is a “commercially realistic” rate.
Many builders can inflate or under quote this cost but in doing so may decrease the ‘residual’ land value eroding available equity or resulting in completion not being adequately covered by costs.
Step Five – Profit and Risk Allowance
This is the profit margin based on either net revenue or cost of development.
Typically smaller developments of 3 to 6 units would expect a margin to be between 15% and 17% and medium sized developments of 7 to 15 units at say 18% to 20% may be allowed.
The margins will vary however based on the following:
- Presales achieved
- Demand for units / sales rates
- Suitability of product in location
- Number of units
- Pricing of end product
- Capital outlay required
Feasibility analysis by financers will require assumption of 100% funding of development allowed. This is so projects can be compared on a ‘like for like’ basis.
Our office can be contacted on (03) 9836 8877 with our directors and valuers available to discuss your property matter. Alternatively see our online Quote Form.