What Is A Property Development Feasibility Analysis / Study?

It will be no surprise that a Property Development Feasibility Study is exactly what it says, in that it is an essential part of any venture to establish – at the early stages – if the project is feasible before committing investment.

It is a comprehensive study reviewing project-specific issues which include, but are not limited to, planning, environmental impact, statutory requirements, site appraisals, number of units and procurement options. Done thoroughly, the feasibility report aims to take away costly surprises in the later stages of the project and give a clear basis for a good return on investment.

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The Purpose Of Feasibilities Studies

The purpose of a feasibility report will depend on the type of property development that you are undertaking.  What do you mean by property development?  This may appear an easy statement to define – but looking in greater depth there are many types of projects that can be classed as a property development.

The markets for residential and commercial are clearly very different but you need to break it down further, so answering the following questions will give you the overriding purpose under which to conduct a feasibility study:-

  • what is the type of property proposed?
  • where is it located?
  • why are you building – for rental or sale?
  • who will be your end user?
  • when will the project be completed?
  • how are you sourcing your finance?

The purpose of your project-specific property development feasibility study is to address the answers to these questions, review the pros and cons and provide the analysis to determine the financial viability.

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Feasibility Study Vs. Business Plan

At first glance, there does not appear to be much difference between a feasibility study and a business plan. They both cover your objectives, detail strategies, look at costs and income and give financial forecasts, which assist with securing loans or investment capital.

Whereas your business plan is an insight into your business’s future and describes what you plan to do and how you plan to achieve it, a Feasibility Study is a more in-depth review of a specific project to test the practicality of a proposed scheme and the likelihood of completing the project profitably.  It enables you to make an informed decision on whether it is viable to invest your time and money into the project and what you can expect as a return on investment.

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The Main Purpose Of A Feasibility Study For Building Construction Before Embarking On A Project

The main purpose of a Feasibility Study is to gain a financial appraisal to determine whether the project is feasible. You need to assess the value of the land or property, the practicality of a proposed design, the estimated costs for the build, the possibility of costly delays in the schedule, strategies for achieving sales projections, and the repayment terms of the investment finance.

You are then in a position to review the proposed property development in the light of your commitments on other projects, your cash flow, your financing costs and your projected profit to make a decision as to whether to proceed.

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What’s included in a Feasibility Study

You need to create a business case for the property development (not to be confused with business plan as discussed above) and so it is important to include a detailed analysis at the feasibility stage of all aspects of the project proposal.  The study assesses individual aspects of the project to acknowledge the strengths and identify the risks.

How to do a feasibility study of a project?  You need to do a comprehensive analysis which includes:

  • Analysis of concept and objectives
  • Market comparison
  • Estimating development costs
  • Planning permission and restrictions
  • Statutory requirements
  • Environmental impact
  • Site Appraisal
  • Procurement options
  • Scheduling to meet optimum time frame

These are the elements that together allow a detailed analysis of the feasibility issues within the proposal creating a development feasibility study.

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Cost vs. value

Value of completed buildings minus (all) development costs minus (all) land costs = PROFITABILITY

Our focus is to create the right balance between value and cost. Our intention is to enhance function and quality whilst reducing or eliminating unnecessary costs thereby creating a cost-benefit.  By either adding value and decreasing costs, or both, you will naturally increase the profitability.

An example of adding value for a new build construction in London, our Kisiel Design team worked closely with the Metropolitan Police to achieve a Gold Award on their Secured by Design initiative on recent development.  As this significantly reduced the opportunity for crime and anti-social behaviour, with low-cost implications, this was a real cost-benefit for the developer when marketing the properties.

Creating the right balance between cost and value is the ultimate aim to give the maximum performance for a good return on investment.

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Who Would Need A Property Development Feasibility Valuation Report?

Anyone wishing to turn their ideas into an effective profitable venture, needs to do a ‘reality check’ on their proposal before investing either their own finances or convincing an investor to develop land.  There is little room for error whether you are demolishing an existing structure and rebuilding or constructing afresh on land.

A feasibility study will highlight any issues and avoid costly mistakes that could emerge during the construction phase when you are already committed to the project.  A feasibility test will make sure that your vision is realistic, give confidence to attract investors and deliver a profitable return on investment.

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