A Financial Feasibility Study will provide you with the estimated costs and profit of your property development project.
As with the Development Analysis Report, the Financial Feasibility Study can easily be conducted for a development site that you currently own or one that you wish to purchase. By using the life-cycle focus on your property development project, you can significantly save time and money in the long term.
One World Property’s experience has shown that a large proportion of life-cycle costs for projects stem from decisions made early in the project. To that end, the maximum opportunity to accurately account and budget for the total life-cycle costs of a project is in the conceptual and preliminary stages of the project. A detailed Financial Feasibility Study will assist you in these areas by providing the following information and more for you to ensure that your property development project is financially viable.
Components of a Financial Feasibility Study:
- Planning approval risk analysis
- Site investigation analysis
- Construction cost analysis
- Market demand / supply analysis
- Profit / risk analysis including taxation (ROC and IRR)
- Sensitivity analysis
- Marketing and sales cost analysis
Depending on the scale and nature of your development, there will be other components to your Feasibility Study which have not been included in this list.
The Financial Feasibility Study is presented in a manner that allows lending institutions or potential investors to easily assess your property development project for financial viability, ensuring that the process of financing your project is smooth and effortless. A Feasibility Study can easily be conducted on any of your chosen options from your Development Analysis Report or from your own concept project plan.
The feasibility study seeks to quantify and model the implications of the relationship between the projects sale price and the compilation of costs associated with the development of the project.
The two basic techniques generally adopted are:
- Return on total development cost (TDC) technique
- Internal rate of return (IRR) technique
Return on Total Development Costs (TDC) Technique
- Estimate income – both projected rental and initial yields
- Compile all costs – both ‘hard’ and ‘soft’
- Capital costs – all are assumed to be borrowed (debt) hence every component of the development costs incurs an interest cost at the nominated rate
- Net development profit level – assuming that the project generates a profit, will in the first instance determine the attractiveness or worthiness of further refining and developing the project.
- The relationship between the projects probable end-value or sale price and all costs associated with producing the subject project together determine both in dollar terms and percentage terms the feasibility of the nominated project
Internal Rate of Return (IRR) Technique
- Regards the time value of money
- Particularly relevant for projects of long time frame where the land is held for many years, and major infrastructure is involved with buildings constructed on a staged basis.
- Project cash flow – reflects the expected timing of revenue and expected items
- Once the IRR is computed it is compared with the established ‘hurdle rate’ commensurate with the level of risk inherent in the project
- For a pure development company the hurdle rate is equal to the company’s cost of capital with a positive or negative adjustment according to whether the project has more, or less, inherent risk than a typical company development
For more information on Feasibility Studies please contact our office or email firstname.lastname@example.org.