Many real estate investors are keen to step up to the next level and get involved in property development.
They think “I’ll buy a block of land or old house, pull it down and build a number of townhouses, units or apartments. In fact one of the most read blogs on this site is How to Get Started in Property Development. But there is a lot more to the development process than what you see happening on site, so today I would like to outline them. In fact most of the success of any property development is underwritten long before you commence construction. You see…property developers follow a sequence of steps from the moment they first conceive a project to the time they complete the physical construction and begin ongoing asset management. When I first became involved in property development, close to 30 years ago, I didn’t really understand this process.
I made a heap of mistakes in my early developments, including leaving out some essential steps, but somehow I still managed to come out with the profit.
I thought I was clever but in reality I was trading in a strong property boom that covered up my blunders.
If I made similar mistakes in today’s property market I probably would not have survived my first development. While the development process varies from project to project, as project managers our team at Metropole Property Strategists has broken the development process down to 9 steps.
If you hire a development manager they will coordinate the whole process or you’ll need to engage a solicitor, an architect, a surveyor, a town planner, an engineer and an estate agent to advise honestly on end values and marketability.
To find out what can be built on the block you’ll need to assess the local council’s policy towards development and see how many new dwellings can be put on the block.
This differs from council to council and even within different locations in the same municipality.
You will also need to assess what the market wants in that particular area – in other words – what type of property would sell or lease well. You see…it’s important to design and build a project that is marketable – the right size and the right type of dwelling for the demographic that wants to buy or lease in that locality. You’ll find councils have strict guidelines about the style of development you can build so at Metropole we undertake a detailed analysis of the neighbourhood, as an important consideration of town planning is keeping the neighbourhood character. Finally we put pen to paper and do some sketches allowing for setbacks, driveways and private open space (as required by council and the planning scheme).
We next place garages and parking spaces on the plan and leave sufficient room for turning circles to drive out in a forward motion as required by many councils.

The land that is left over after all of this is accounted for will determine how many units and of what size can fit on the block.
We include time scales, all costs including consultants and construction costs, as well as the likely end sale values and the profit margin we require. And the we add a bit extra for contingencies, because unexpected costs crop up in every project.
We plug all these numbers into a feasibility software program which enables us to calculate the residual land value – the most we could afford to pay for the land to make it a viable development project.
If the project is viable, in other words financially feasible, we then consider making an offer to purchase the land on favourable terms. At this stage we buy the land at a price that allows our clients to make a commercial profit. Now our architect draws up plans that fit in with the planning regulations and accords with the local council’s development guidelines.
Due to the increasing complexity of the development process, a surveyor and town planner are often involved at this stage.
Once the Development Approval (DA) has been achieved our architect and engineer document the working drawings to allow us to obtain a building permit (called a Construction Certificate (CC) in some states.) This stage can take 2 to 3 months. We now obtain quotes from a number of builders and organise finance for the construction phase of the project based on the builder’s fixed price contract. This is the stage when we finally get on site to build our client’s project, paying the builder progressively at the completion of each stage.
The construction stage can take between 7 to 12 months depending on the size of the project. As you can now tell, while many people consider that construction is property development, it is really just one of the stages of the development process. Construction is what a builder does; remember most developers are not builders so they never really get their hands dirty. Once the construction is finished, a plan of subdivision is completed and the project is refinanced and leased and held in the long term (my preferred option) or sold. While this is the last stage of the development process, we always advise our clients to begin with the end in mind – have an exit strategy right at the beginning of the project. While property development can be very lucrative, many beginning property developers get themselves into trouble because they don’t know what they don’t know. They step into a potential minefield without doing sufficient homework, so in future articles I will go through each of these stages in much more detail.
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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. Nationally, vacancies decreased during February, recording a vacancy rate of 2.1% and coming to a total of 60,330 nationally.
Melbourne has recorded the highest vacancy rate of the capital cities, revealing a vacancy rate of 2.4% and a total of 10,834 vacancies. Darwin has recorded the tightest vacancy rate of the capital cities, revealing a vacancy rate of 1.3% and a total of 354 vacancies.
Overall rental conditions continued to modestly favour landlords over the course of the month, with some interesting results coming out of Melbourne and Perth.
It has been some time since we recorded a definitive decline in vacancies in what could be a sign that the excess stock seen in Melbourne is starting to be occupied. Meanwhile the sharp falls in rents for Perth are in line with rising vacancies being recorded there and are a manifestation of a rather rapid decline in demand for accommodation. Year on year, vacancies have still risen by 0.3 percentage points, with the country experiencing a substantially looser rental market than this time last year. The general trend has been downward for many regions in Melbourne such as Eastern Melbourne, Inner East Melbourne, Melbourne North and Melbourne West.
We note the Melbourne CBD did too, record a fall for the month but its figures are still up from this time last year and SQM Research continues to retain our warning for CBD vacancy rates.
The decreases in asking rental prices for each of these capital cities can be explained simply – for Canberra, the government job cuts in the city have seen an exodus of residents from the area; and for Perth – the downturn in the mining boom has caused a decrease in demand for rental dwellings in the area.
Louis is recognised as one of Australia’s most respected and impartial research property analyst. Or are you planning to develop your property, manufacture capital growth and rentals returns and then keep your high performing property (my preferred strategy)?
Will it be in your own name, in a company, a trust or maybe you’ll be involved in a joint venture? He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Featuring topics like property investment, property development (helping you understand the process), negative gearing and finance (so you can borrow more from the banks), property tax (allowing you to structure for legal tax deductions and asset protections), negotiation, property management (assisting landlords and tenants understand their right responsibilities), commercial property (for experienced property investment individuals), personal development and the psychology of property investment success. Are there any overlays, easements or covenants on the title which will restrict it’s development potential?

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