BLDG3021 – Property Development

Property Development Process

and Planning Framework
Dr Rotimi Abidoye
Bachelor of Construction Management and
PropertyUNSW Built Environment
 School of Built Environment\Construction Management and Property

BLDG3021 – Property Development

Property Development Process and

Planning Framework
 Last Week
 Introduction

 Course Details

 Group Report

 Introduction to Property Development

 Property Development Resources

 Property Development Finance

 Property Development Stakeholders

 Property Development Risk and Uncertainty

 Market And Marketability Analysis

 Property Development - Types

 Resources
 Outline

 Property Development Process

 Development Value

 Planning Framework
 Property Development Process

 The property development process

is applying scarce resources to

meet the property needs of the

public.

 A structured process to ensure the

role of the developer delivers on

the stated goals

 Property Development Process

Planning addresses risk

Your Project Avoid Mitigate Transfer Accept

 Property Development Process
Organisations initiate development projects, and they usually have different

motives for making such decisions. These organisations include:

 Commercial property developer (profit)

 Government agencies (to meet social needs)

 NFP and charitable organisations (specific charitable needs)

 Joint ventures, partnerships (it may vary and could be a combination)

 Universities (social and economic needs)

 Superannuation funds (profit), etc.

 Property Development Process
 The process of property development takes a sequence.

 Property development cannot be an afterthought – it requires planning.

Changes in the need in the subject property market, the targeted

buyers/occupiers, the competitors and the market must be evaluated before

embarking on property development.

 Property development employs “the factors of production”

 Land (the site)

 Labour (the professional team and the other workers)
 Capital (finance to purchase land, materials and pay the workers)
 The entrepreneur (the property developer)
Property Development Process
 Property Development Process
The property development process entails a timeline of actions from the

inception/initiation to the completion/disposal stage. The process involves:

 The initiation

 The evaluation

 The acquisition

 The design and cost planning

 The planning permissions and approvals

 The commitment

 The implementation and construction

 The disposal (let, manage, disposal, divestment)

 Property Development Process
 Some of the stages/steps may overlap or be repeated.

Measure twice, cut once…

 This could be true for a development that is speculative where occupiers

would be sought after the completion.

 If the development is pre-sold or for a client, then the disposal (let, manage,

disposal, divestment) stage will come before the evaluation stage.

 Property Development Process - Initiation

 Property development is initiated with the inception of an idea. A site is

considered suitable for use or when there is demand for a particular land
use.

 At this stage, the developer could be developing for a client or responding to

market signals.

 Whether there is a client or responding to market signals, a thorough

interpretation of the market conditions (change in demographics, economic,
social, physical and other factors) is needed at this stage.

 The developer will expect to make a “profit” from the development. Therefore,
the demand for the property is to be identified in a market where supply is
limited. There may be a need to obtain planning permission for a change of use.
 Property Development Process - Evaluation
 This stage/step is very important to property development because the
decisions made here would influence the rest of the process.

 This stage involves market research (general and specific terms).

 This would dovetail into the financial appraisal of the proposed development.

 For a private developer, the expected profit and risk attached are to be
evaluated. For a public developer (government or NFP), the motive is to
ensure cost recovery (breakeven).

 At this stage, the value of the site is to be estimated.

 The findings at this stage would determine if the project is feasible or not,
and if the developer would embark on the development or not.

 This step should be continuous, monitored and revised (if needed).

 Property Development Process - Acquisition
When the decision to develop has been made, there is a need to prepare for the
commencement of the development. This includes:

 All the legal investigations of the rights, titles, ownership, encumbrances, rights-
of-way, planning permissions, etc., must be assessed. This is necessary to save
time, money and mitigate risk.

 A reconnaissance survey of the site is recommended. This is to establish the site

load-bearing capacity, access to the site, drainages provided, and the
existing and proposed services (water, electricity, gas, internet, telephone, etc.).

 A thorough evaluation of the source of finance is recommended to decide on the

most favourable terms and conditions. Short-term finance would cover the
development stage, and long-term finance to hold the development as an
investment. A convincing feasibility report may be requested by fund providers.
 Property Development Process –
Design and Cost Planning
 This is a continuous process and gets more detailed as the development
progresses.

 When the occupier is known, the design process will be easy. However, when
this is unknown, there would be a need for a trial and error of different
designs by the professional team to arrive at the best option.

 The layout plans are designed at this stage to show the position of the
proposed building on the site and the internal arrangements of each floor.

 Detailed information is provided to the QS at this point to prepare the initial cost
estimate of the project. This could be subject to adjustments.
 Property Development Process –
Design and Cost Planning (cont’d)
 The final cost estimates would assist the developer in preparing a financial
appraisal and in sourcing funds.

 This stage involves the professional team, and they would review this
throughout the construction process.

 This must be finalised before moving to the next stage to avoid delays.
 Property Development Process –
Planning Permission & Approvals
 Approval for the development would need to be sought from the government
at different levels.

 When a development requires a change of use, planning permission from the

local authority should be sought.

 The planning application would include detailed drawings of the development,

access to the site, the design, landscaping, external appearance, etc.

 If the circumstances of the development change after the approval, further

approval is to be obtained.

 The planning permission requires a detailed knowledge of the applicable policies

and legislation and how they operate.

 All necessary legal permission must be obtained before commitment because

flexibility diminishes from here - [Link]
Property Development Process - Commitment
 Land, labour, finance, material, and statutory planning permission/approval
must all be satisfactorily sorted before any agreement is signed and money
committed to any venture.

 At this stage, the project must be evaluated again for any adjustments. This is
due to changes in some economic circumstances.

 Cost (professional fees and staff time) should be minimal until the site is
acquired.

 A conditional acquisition of the site is entered when the developer has

insufficient time to carry out all preliminary investigations or when the financing
is yet to be secured.

 Here, the land is acquired, finance is secured, the building contractor is

appointed, and the professional team is commissioned.
Property Development Process – Implementation
 When all the raw materials needed are in place, the implementation begins.

 At this stage, flexibility that was possible at the earlier stage may no longer be
possible. Hence, evaluation should be performed when possible.

 At this stage, the development is to be completed within the expected time

frame, within the budget and without compromising the quality of the
development.

 A Project Manager could be appointed to coordinate the building process.

 Problems could come up during this stage. Therefore, the Project Manager or the
Developer should make prompt decisions to minimise delays and cost overruns.

 The market should be constantly monitored to ensure that the development is

right for the targeted buyers/users (may require a change in specifications).
 Property Development Process –
Disposal/Divestment
 This is often the last stage of the development process.

 This decision should be thought out from the first stage and updated. The
decision could be “to let” or “to outrightly sell”.

 The ability to secure occupiers for the development at the estimated price or
rent within the forecasted time could determine the success of the project.

 The agent commissioned to either let or sell the properties should be on the
professional team.

 The decision to let or sell could be made before the completion of the project,
but this is to be made jointly with other stakeholders such as financiers or
landowner(s). However, the developer should be flexible to consider the
market conditions before the completion of the project.
 Development Value
 Development value can be realised when the injection of capital in a land or
building would increase its value.

 The developer would usually consider the development value when making a
decision.

 The development value can be determined by estimating the increased

value of the land (after the development) and less all the total construction
cost, the value of the land and building.

 This cost should include a profit for the developer which represents risk and
the commitment of the developer.

 However, several circumstances can influence the developer’s profits before

the completion of the project. If the development value increases over this
period, the developer’s profit would increase and vice versa.
 Development Value
 The global and national issues experienced in the last few years (COVID-19,

trade wars, macroeconomic headwinds, Middle East war, etc.) could cause

the development value to be drastically reduced.

 In such a situation, the developer could decide to postpone the construction

towards market recovery for as long as the planning permission could be held.

 Hence, there is a need for market and intelligence forecasting in order to be

rightly guided. This does not totally eradicate the investment risk.
 Development Value
 Where the development is ongoing and the unfavourable condition occurs, this
may reduce the profits of the developer (when the development is speculative).

 The developer can only mitigate internal factors and cannot influence the
external overall economy or circumstances.

 The developer may be better off when the development has been pre-sold or
pre-let.

Land value = GDV – (construction cost + developer’s profit)

Developer’s profit = GDV – (construction cost + land value)

GDV means Gross Development Value

 Development Value
Class Illustration 1

A development is estimated to have a GDV of $30,000,000 and a construction

period of 2 years.

 All development costs (professional fees, contingencies,

finance fees, marketing, letting and disposal fees,
construction cost, etc.) $20,000,000

 Developer’s profit/margin @ 15% of GDV $4,500,000

 Land value $5,500,000

All other things being equal, the land should be purchased for $5,500,000.
 Development Value
Class Illustration 2

From Illustration 1, imagine a buoyant demand for properties before the end of the
construction period, and the GDV increases to about $32,000,000. If the
construction costs remain the same, this will amount to about 6% more GDV than
the estimated $30,000,000. The developer could make more profit/margin :

 All development costs (professional fees, finance fees,

letting and disposal fees, construction cost, etc.) $20,000,000

 Developer’s profit/ margin @ 15% of GDV $4,500,000

 Additional developer’s profit/ margin $2,000,000

 Land value $5,500,000

A 6% increase in GDV has resulted in a 45% increase in the developer’s profit/margin.

 Development Value
Class Illustration 3

From Illustration 1, now imagine a situation where there is a decrease in the demand
for the development by the end of the construction period to the tune of about 10%
of the GDV. This would amount to a GDV of $27,000,000. If the construction costs
remain the same, this could result in a reduction in the developer’s profit/margin :

All development costs (professional fees, finance fees,

letting and disposal fees, construction costs, etc.) $20,000,000

Developer’s profit/margin @ 15% of GDV $4,500,000

Developer’s profit/margin is now $1,500,000

Land value $5,500,000

A 10% decrease in GDV has resulted in a 67% decrease in the developer’s profit/margin.
 Planning Framework
 Any activity carried out in, on, over or under land or any material change in the use

of a building or land in the form of building, construction, engineering, mining or

other operations requires planning approval from the appropriate authorities.

 Planning regulations are put in place to ensure that the impact of building

construction on the environment is controlled, land use specifications are adhered

to, adequate allocation of the available land for different uses is ensured, and to

protect the interests of the public, etc.

 The planning policies will affect the development potential of the site and, in turn,

enhance the value of the site.

 Planning Framework – Key Stakeholders
 Landowners

 Developers

 The Community

 Objectors or Supporters

 Government
 Federal
 States and Territories
 Local authorities

The property developer needs to be aware and devise a strategy that balances

development objectives with the built environment and community outcomes.

 Planning Framework – Key Stakeholders

The What’s In It For Me proposition, and

how the property developer will respond to
the betterment of external stakeholders
and the community, maximise urban
outcomes and returns for the developer

[Link]
increased-density/news-story/cd8d673206b2efda374d2b9cf814863e
 Planning Framework – Case Review

Meeting needs and density done well

Accommodating population growth and managing infrastructure pressures

[Link]
national

[Link]
Journal
Planning Framework – Case Review (Stockland Balgowlah)

[Link]
 Planning Framework – Case Review

[Link]
 Planning Framework – Case Review

[Link]
 Planning Framework –
Density done well: Central Park

Turning an industrial site into a new city quarter

[Link]
Planning Framework – Planning Process in NSW
 Environmental planning is driven by changing priorities and focuses on
interaction between the built and natural environments
 Response to public concerns on environmental and land use issues
 Has evolved since 1979 from a legal instrument to a standard template with
outcome-driven focus:

• Ensuring appropriate quality in urban growth and design

• Fitness-for-purpose to land use

Includes due process for fair and equitable rights for all stakeholders

In NSW, legislation regulating land use is:

Environmental Planning and Assessment Act 1979

 Planning Framework –
Development Planning Controls
Planning controls (or instruments) that impact property development are:

 State Environmental Planning Policies (SEPPs) are policies that set the
rules that control what development can occur on land in a state.
Includes housing SEPP, transport and infrastructure SEPP, Biodiversity SEPP, etc.

 Local Environment Plans (LEPs) are the main planning tool for shaping the future
of communities and ensuring local development is done appropriately.
Includes floor space ratio, minimum lot size, land use zoning, height of buildings, etc.

 Development Control Plans (DCPs) provide detailed planning and design

guidelines to support the planning controls in an environmental planning instrument (LEP or SEPP).
Includes setbacks, landscaping, car parking, building design, etc.
 Planning Framework –
Development Planning Controls
 Reflection

 Property Development Process

 Development Value

 Planning Framework
 Next Week

Market Analysis and Marketability Analysis

Questions & Answers