Development is a risky business. In part seven, Tracey Cook looks at some of the pitfalls developers should be on the look out for.
THE processes successful developers use to ensure that their developments give decent returns are, to a degree, good common sense.
Market research, comparative analysis, thorough due diligence, comprehensive costings and good working relationships are some of the main tools developers use to help navigate their way to a property development success.
With the best of intentions, however, development is still a risky business and the developer has to be savvy about the numerous pitfalls they can run into.
Asia Pacific Property Group director Damien Collins has been in the Western Australian development game for the past six years.
Prior to his relocation to Perth, Mr Collins developed property in Melbourne and has built up his company doing predominantly residential property development.
He said development was a risky game but that was why there were high returns.
Mr Collins said that the current scramble on the market to acquire good quality development sites was causing some organisations to pay exorbitant prices for land.
Unfortunately the common place practice that increasing the resale price to cover the extra land costs places too much trust in the market continuing to improve, he said.
“Who knows what the market is going to be in 12 months time,” Mr Collins said.
He said a better approach was to first determine what the end product could be sold for and then work backwards to calculate what to pay for land.
Getting well acquainted with the local planning authorities and town planning scheme ensures developers do not get duped about what is permitted on purchased land.
“You must religiously read and understand the town planning scheme. Each city’s planning scheme has its own quirks,” Mr Collins said.
He said he had learnt to only place full credence in information he had researched himself.
“In development you have to rely on yourself, you take ideas from people but you do your own due diligence,” Mr Collins said.
Urban Development Institute of Australia president Colin Evans said there were numerous legislative requirements developers had to take into account when considering a development site.
For example, where there are requirements to conserve wetlands or other significant areas some local governments will allow the area of land protected to be included as part of the public open space allowance, whereas others will only allow a small percentage.
Mr Evans said a lot of development land available in Perth had been used as market gardens in the past and, therefore, developers needed to check for contamination to avoid another cost impost.
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