A property development feasibility study is a structured document that assesses the commercial and financial viability of a development project before significant investment is made. It covers projected costs, construction planning, market research, regulatory requirements, and potential profit. For anyone considering a property development in Australia, it is one of the most important documents you will produce.
Why do you need a property feasibility study?
A property development feasibility study is the best way to weigh up the risks and (potential) rewards of your development prior to committing capital. You can road-test your development before you commit in the long term.
It’s the best way to get broadly informed across your whole project and determine whether your project is likely to be a success or a failure. This kind of information is mandatory if you’re looking for financing.
What are the benefits of conducting a feasibility study?
There are a number of benefits to conducting a feasibility study, particularly in commercial property development. Its remit is broad, allowing you to investigate the feasibility of the development’s architecture, finances, construction and so on.
Project understanding
A feasibility study forces you to examine every aspect of your development: costs, timelines, approvals and market conditions. This process often reveals gaps in your planning that would otherwise surface at a far more expensive stage.
Concept testing
Before committing to a site or design, you can test your concept against real financial and market data. Identifying pressure points early (such as tight financing timelines or unrealistic sales yields) allows you to adjust your approach before costs escalate.
Stronger investor and lender confidence
Beyond boosting your confidence about your project, a thorough feasibility study is a powerful tool when seeking finance or attracting investors. It demonstrates that your project has been properly analysed and that risks have been identified and planned for. Fixed-price construction contracts, for example, are viewed favourably by lenders precisely because they improve cost certainty within the study.
Accurate Cost and Cash Flow Planning
Understanding your full cost picture helps prevent cash flow problems during the build. Underestimating costs is one of the most common and damaging mistakes in property development.
What should your feasibility study include?
While the nature of your project will determine some of what you need to include, typically you can split your feasibility study into costs, rules and regulations, market research and profit possibilities.
Costs
Potential costs will form the backbone of your feasibility study. They will dictate the potential profit you can make from the development, which again determines the feasibility of the project.
Some of these costs include:
- Land purchasing and acquisition costs (including legal costs, stamp duty, land valuation and conveyancing fees)
- Financing costs (including brokerage, application fees and legal costs)
- Council costs and regulations (if relevant)
- Construction costs
- Utility connection fees (gas, electricity, drainage, telecommunications and internet)
- Sales or marketing costs
- GST
- Insurance costs
- Contingency
We will explore these in greater detail below.
Financing costs
Depending on where in the process you begin your feasibility study, you may need to factor in the costs of the loan you need to finance the build. This could include costs like brokerage, legal costs and application fees.
Depending on your build arrangement, you may need to provision for land acquisition and build financing costs separately.
Construction costs
Once you’ve borrowed the finance, you need to consider the costs of the construction itself. Working with a builder or developer who offers a fixed price contract (as we do at Novus Projects) helps you to calculate the costs of your project. Fixed price contracts are viewed favourably when securing financing.
Utility connection costs
You will have to pay a fee to connect all of the utilities to your development. Depending on your intended commercial use, these could be comprehensive. You need to make sure that any building you develop has gas, electricity, drainage, telephone and internet access as a bare minimum.
Insurance
Insurance is not an exciting charge to factor into your budget, but it’s a legal requirement. You need public liability insurance, contract works insurance, professional indemnity insurance and you may need to consider workers’ compensation, depending on how many workers you will have reporting directly to you.
You might also want to consider existing property insurance (if you’re renovating an existing building) and management liability insurance, depending on how large your development is.
Contingency fund
You also need to include a contingency fund, in case any costs overspill. If you set additional money aside, you have a necessary buffer to continue your build if you are hit with unexpected costs. 5-10% of the project cost is typical.
Rules and regulations
Your feasibility study should account for local rules and regulations including zoning restrictions, development application requirements, heritage overlays and any certifications relevant to your site. Different councils and suburbs will have very different rules about what you can and can’t do and what certifications and fees you need to pay.
Depending on the size and scale of your development, you may have to factor in costs for options like rezoning.
Market research
Sound market research determines whether there is genuine demand for what you plan to build. This includes assessing local supply and demand, comparable sales or rental yields, competitor activity, and the area's current amenities and growth trajectory.
Poor market research is one of the most common causes of feasibility study errors. Overstating rental yields or sales prices can make an unviable project appear profitable on paper.
Potential profit
Having examined all of your project’s potential risks and liabilities, you can then look into its potential and its cost effectiveness. This part of the feasibility study can offer you some guidance as to how you expect your project to generate a profit. It might demonstrate that selling the development at the end is the best way to recoup your investment or indicate that renting out units within it is the better option.
Most importantly, it will show you what’s possible.
What mistakes should you avoid?
Being thorough is the best way to avoid mistakes. The most common errors in feasibility studies come from poor market research and creating unrealistic timeframes or inflated sales or rental yields.
Other typical mistakes are failing to include a contingency plan within your budget or miscalculating construction costs. Each of these mistakes can be extremely costly, so it’s worth taking the time to make sure your feasibility study is accurate.
Who carries out a property feasibility study?
There are firms that specialise in carrying out property development feasibility studies. They have the expertise to coordinate the entire process and analyse all the data, to provide you with a comprehensive feasibility study report.
You may also want to seek input from a real estate agent and town planner, depending on what your development is, and what your own skillset is. Within the study, you may want to engage an architect if you want a feasibility study of the architecture.
Should you use external consultants?
Using external consultants to supplement your own skillset will give you a more comprehensive study and a better understanding of the project costs.
Can I carry out a property feasibility study myself?
Yes, you can carry out a property feasibility study yourself, but it's important to understand the limitations and potential risks of doing so. While a basic study is possible, a professional-level analysis is complex and typically requires input from various specialists.
Bringing in professionals to share their knowledge will increase your accuracy and mitigate your risks. It will also make your project more appealing to an outside investor.
FAQs
The friendly team at Novus Projects is happy to take any questions you might have. You can also check our FAQs to see if they answer your query.
How long does a feasibility study take?
A full property development feasibility study can take anywhere from 2 to 6 weeks, depending on how many professionals are involved. You can carry out a basic, preliminary assessment in a few hours, but a formal study with adequate market research and insight into planning requirements will take much longer.
How much does a study cost?
How much your study costs will depend on how many consultants you use. The bigger the scale of your project, the more professionals you will need. This drives the cost up. Larger commercial projects will be more expensive than residential developments.
Your location, and how difficult it is for consultants to access your site, will impact cost. It can cost from around $10,000 to over $30,000 depending on what's required.
How often do you need to adjust or update your feasibility study?
If you decide to proceed with your project, it’s worth revising your feasibility study at each key milestone of your development.
You should also re-examine your feasibility study if there are any major market changes. A feasibility study is not a static document; it’s constantly evolving.
What are the five stages of a feasibility study?
A property development feasibility study has many different phases. Typically, they can be broken into five stages:
- Market analysis
- Site analysis
- Financial analysis
- Risk assessment
- Deal evaluation and conclusion
What if a project isn’t feasible?
While it might be disappointing if a project isn’t feasible, you can at least make an informed decision. You will also have saved yourself a lot of money in the long run. You can also learn a lot from the findings. You may be able to use the analysis to adjust the development and make it feasible.
Alternatively, you can apply the lessons to another development. You may learn something about your own approach to budgeting or your understanding of the market, but it won’t be wasted.
At Novus Projects, we deliver projects with clarity, cost control and confidence. We offer fixed-price construction contracts, which improve cost certainty in your feasibility study and strengthen your position when securing financing.
If you have questions about your development or would like to discuss how a feasibility study applies to your project, contact the Novus Projects team.