Getting the basics right at the start of any development project is the key to ensuring its successful completion. This means finding the right site for your project and correctly assessing its viability, before securing finance for its acquisition.

Daniel He, property director at CrowdProperty shares expert insights on finding the right development site that can help drive the success of a project right from the start.

Zoning

The first factor to consider when looking for a development site is the zoning for the location.

However, the permitted usage and development of an area should just be the starting point. Developers should also scrutinise the detailed regulations that govern specific aspects of land usage.

This can cover a range of factors that will profoundly impact whether or not the site is suitable for the type of project a developer wants to pursue. Such factors include building height, lot sizes, setbacks, and density restrictions.

Zoning involves more than just permission from authorities to proceed with a project. It can often serve as an important signal from local governments on the types of projects they want to encourage in their jurisdictions, explains Daniel.

For this reason, developers can use zonings to discover parts of the market where it will be easiest to pursue their projects because of council support.

“There are zonings across the country where a much higher density is encouraged compared to general residential zonings,” Daniel said.

“Development in those areas will enjoy significant support from local authorities, instead of them working against you.

“For this reason, choosing your zoning at the outset can determine whether you’ll face headwinds or tailwinds with your project.”

Block dimensions and site orientation

Developers are well aware of the need to consider the dimensions and orientation of the site to ensure it’s appropriate for the project and large enough to accommodate all the dwellings involved.

Daniel further highlights the importance of considering the target market for a development when considering dimensions and orientation.

“If you’ve got a project where you’re targeting families, you would want a north-facing backyard to provide appropriate amounts of sunshine,” Daniel said.

He also warns against trying to cram too many units into a single block, which can adversely impact a project’s profitability.

“There is a temptation to always fit extra dwellings to improve feasibility,” he said. However, this increases density and potentially reduces the saleability of the number of dwellings you do have.

Encumbrances, streetside services and overlays

The surrounding features of a site can have a decisive impact on a project’s viability. Within the immediate vicinity of the site itself, this includes both availability of services and encumbrances. These encompass nearby infrastructure that make it possible for the completed project to serve as a functional dwelling, including power, NBN connections, water and gas, as well as sewerage, all of which can cost exorbitant sums of money to connect to the development .

Daniel said due diligence in this area is one of the most essential tasks for developers. It helps to prevent expensive oversights and ensures that feasibility studies made at the outset accurately reflect the project.

Despite being an advanced, highly urbanised economy, not all plots of residential land in Australia are properly connected to essential infrastructure. Failure to properly scrutinise surrounding features can lead to unexpected costs of tens of thousands of dollars.

“If any key services are missing it can add substantial expense to the development in terms of holding costs and infrastructure builds,” Daniel said.

“In one project I worked on, there was no sewer service. While the initial feasibility stacked up, adding the extension took many months and added tens of thousands of dollars to costs.”

Beyond the immediate vicinity of the site itself, developers should also be well aware of nearby infrastructure and amenities, all of which can affect a project’s market appeal and pricing.

This includes transportation infrastructure and shopping centres as well as schools and recreational facilities. It can also encompass playgrounds, parks and swimming pools

Assessing project viability

At the end of the day, the financial benchmark for the success of a property development is whether or not it makes money.

For this reason, assessing a project’s viability at the outset is a critical task for developers, as they need to know if it’s worth the commitment of a huge amount of their time, energy, and resources.

Perhaps the best metric for determining the viability of a development is its potential return on cost (PoC), with many property investors considering a project with a Poc of 20 percent as the benchmark for success.

Developers need to focus more on basic figures when determining project viability. Daniel advises that developers treat property in the same way as any other asset class, and make sure that returns are commensurate with risk.

“The potential return on investment has to be in line with the risks undertaken,” Daniel said.

“If you’re building a very simple complying development consisting of a single-storey build, you can potentially look at lower returns because your level of risk is lower.

“If you’re doing a large, 100-lot subdivision, then your margins and timelines need to be generous in order to compensate for the risk.”

Securing finance

After you’ve found the right site and determined that the project is viable, the next step is to acquire the plot by completing the settlement for its purchase.

Finding the right site for a project can be a difficult task that requires time and effort. For this reason, it’s a good idea for developers to use site acquisition financing to ensure that they’ve locked the site down, even prior to the development application process.

Site acquisition finance is a short-term bridging loan of between three to 18 months, that enables developers to pay for the settlement of a project site quickly.

Daniel recommends developers secure this form of finance as early as possible from specialist lenders, as this can give other investors the confidence to come on board to provide funds. This means that in addition to locking down sites in advance, developers are also paving the way for subsequent financing.

“You can approach other investors and tell them that you’re not the only one who thinks the project works, and that other financiers have already provided support,” Daniel said.

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