Why Develop Residential Property?
Although the general process of developing property is the same for most building types, the level of risk between them is varied.However, residential development offers a good balance between some of the more volatile risks in the process.
This three part article series takes a look at some of the more favourable factors when developing residential property in the Australian market.
The intensity of financial risk hinges on a number of factors, some of which are not in your control. The most common factors that may force a developer to sell at a loss include poor assumptions within the feasibility study, inadequate budget allowances, lower market sale price sentiment, interest rate increases, extended period for sales.
if your game plan is to on-sell for a profit quickly be sure to account for factors such as: Unexpected conditions of sale ie. Subject to sale of buyers existing property. or a sudden downturn in market sentiment. Usually due to an increase in interest rates.
Most developments will be financed. Finance will usually ask for equity up front to secure the funds. This can be a cash deposit, up front payment of settlement and conveyance costs, including interest and taxes. A change in the liquidity of the end product may cause a negative cash-flow scenario and place the invested capital at risk if the funding is foreclosed.
In the next article in this series we will be discussing: Development process delays, Changes in regulations and Market trends