A Real estate feasibility study is the basic analysis and research conducted to ascertain if the proposed property development is viable or not.
Real estate development is a resource intensive venture. Property development, acquisition, expansion, or re-development - all requires careful planning and thought. There are too many external factors that impact the development activity. The risks are high, and project requires a multifaceted strategy.
Schedules and timelines are generally volatile and subject to all kinds of personal, political, social, topographical, and weather interferences.
Given such circumstances, the real estate feasibility study is of utmost importance when planning any kind of real estate development.
Defining Real Estate Feasibility Study
Real estate feasibility study is the basic analysis and research conducted around the property in question, to ascertain if the property development is viable or not. And to ascertain whether it is a stable and profitable investment. Any real estate feasibility study takes into consideration the below factors:
- Location of the property
- Demographic influences like socio–political-economic conditions
- Legal and economic considerations
- Weather and environmental conditions impacting the development
- Resource’s availability
- Internal and external influences
- Technical requirements
- Competition in the market
- Organizational capacity needed to kick start the project
An in-depth and holistic research and analysis of these factors, and their interactive equations, minimises the chances of incorrect projections and decisions that could very well spell the doom of the project.
You can also read how to do a market feasibility study to understand the complete process of doing a real estate feasibility study.
Benefits of Real Estate Feasibility Study
Why is the real estate feasibility study critical to the success of a property development?
The property development process is not linear process but an exponential spiral that is impacted by multiple factors, internal, external, man-made and natural. Hence it is important to understand how these factors play out regarding the project. An accurate research and analysis through the real estate feasibility study prepares the ground for speedy and smooth development of the project, minimising the risks and maximising the anticipated profit ratios.
A real estate feasibility study helps to ascertain and establish the below key factors:
Concept Strength – All concepts and ideas are amazing till the time comes for investment and implementation. A real estate feasibility study analyses the project idea under various scanners of costing, organisation, and planning to determine the strength and viability of the concept.
- It checks for the loopholes, hindrances and situations of money and resource drain.
- Testing the concept under all possible scenarios, helps to prevent unprecedented losses and delays and saves money, time, and effort.
- Testing the concept strength and viability leads to better planning and organisation at the implementation stage.
- Also, it reduces the ambiguity and probabilities and makes the project plan more definite, with a more assured outcome.
Confidence and Trust – A real estate feasibility study empowers the developers with relevant data that enables them to gain confidence in the project.
- Once the concept has been tested and secured through the real estate feasibility study, it goes without saying that the process and the outcome, both become assured. This elimination or minimising of probabilities, helps the project developers gain confidence and trust in the project.
- Knowledge is power, and having the relevant information and data, provides the developers with an assured success scenario that enables increased confidence and trust in the project.
Also, read the Technical Notes & Discussion on Feasibility Study to know more about these concepts.
Financial Insight – For the success of any project, finance is the most important factor. A real estate feasibility study provides a holistic financial insight into the project.
- Undercapitalization, financial blockage, especially in the early stages, is the most prominent cause of failure. A real estate feasibility study helps to ascertain whether the project is adequately financed or not.
- It also helps to determine the various financial sources for the running cost of the project, before the project goes underway, thereby ensuring smooth and successful implementation and running of the project.
- Moreover, to approach Banks or Potential Investors for any assistance, one must have an in-depth real estate feasibility study about the financial assessment and data on the project.
- A good financial insight helps identify new and profitable opportunities.
- Also, the financial insight that a real estate feasibility study provides, helps to ascertain both, the reason why is it worthwhile to undertake the project, and why the project is not worthy of moving forward with.
Supply Chain and Resource Availability- Property development requires different types of resources from varied sources. Hence there is a situation of demand and supply that needs to be addressed. When dealing with multiple sources of supply, and adequate availability of resources, a good supply chain is critical to the success of the project.
A real estate feasibility study helps to:
- Determine if all the supply chain and communication pipelines are strong enough to bear the demands of executing the new project smoothly and successfully.
- Highlights the gaps in the supply chain. For a team operating multiple projects of a business, the real estate feasibility study also highlights the gaps between different project demands, thereby exposing the need for other contractors or members to be brought in.
- Ascertain if the resources are available in adequate quantity and within reasonable reach, to not cause delays or blockages.
- Determine if supply chain pipelines ready enough to get the project rolling or the project needs to be put on hold.
Profit Estimation – For any business, profit is the only criteria of success. Good profits mean good business.
A real estate feasibility study helps to determine
- The total cost of investment
- The complete graph of estimated earnings
- The ratio of estimated profit margin.
- The expected timeframe of investment and profit returns.
Knowing the profit value helps the developers to know their game and their chance of winning. This naturally empowers the developers to ascertain the true worth of the project and whether it is worth moving forward with or not.
COMPONENTS OF A REAL ESTATE FEASIBILITY STUDY
Depending on the nature of the project, its requirements, resources etc, one real estate feasibility study may differ in certain details from the other. However, there are some universal components that must be covered in a real estate feasibility study report.
A real estate feasibility study must necessarily address, research upon, compile data on, analyse the following aspects:
Implementation of any project needs a technical support, without which it is bound to fail. Technical feasibility study investigates and determines the technical support and capacity of the company to bring the project into realisation. It is a study of all technical aspects from required technology, technical team to all other technical resources needed to ensure the success of the project.
The society we live in is built upon a legal structure. There are legalities that need to be understood, addressed, and worked with to ensure a smooth and successful run of a project implementation. The project must align with the existing laws and regulations like the zoning laws, site laws etc. A legal feasibility study analyses all the legalities to ensure a smooth, successful, and cost friendly implementation of a project.
Operation and management are critical to the success of any business or project. The operational feasibility study investigates all areas of operational infrastructure to determine if the operations system and management is ready and equipped to successfully deliver the project. It also investigates the impact a project implementation may have on the overall operation and management of the company.
The time duration of a project from start to finish is very crucial to the success and viability of a project. The exactness of the project timeline helps to determine the finance flow accurately and know if the project is well capitalised or not. Awareness of the time frame of a project helps structure a defined blueprint for the project implementation. The grey areas of probabilities can be done away with. And this helps to pot the relevant buffers in place. A scheduling feasibility study helps to chalk out a realistic schedule for getting the project done. This enables a metric tracking to be done during the project development.
SITE ANALYSIS AND ZONING ANALYSIS
Site and zoning analysis are two very integral segments of a real estate feasibility study.
Site Analysis for real estate development
Site analysis is the analysis of the selected site to determine if the site fulfils the requirements of the proposed property development.
A real estate feasibility study on site analysis helps to determine the below:
- whether the site is worth investing
- Whether the site fulfils all rules and regulations and is compliant with the legalities
- If the site can be built upon and developed within the assigned time frame.
- Site survey of the selected area
- Topographic features like land make-up
- Elevation and slope
- Drainage and flooding
- Soil composition and contamination
- Site utilities
- Zoning ordinances
- Street analysis
- Land use around the site
- Historical, social, and economic conditions of the area
Site analysis provides important information about the location. It helps to identify potential challenges and advantages the project may run into during the property development.
Benefits of site analysis are listed below:
- Understanding merits and demerits before investment.
- Assessing the scope of developmental avenues for the site
- Identifying potential constraints that might hamper the site development
- Evaluating the infrastructural characteristics of a site
- Gathering information for the zoning request
Real Estate Feasibility Study of Zoning Laws
Once the Site analysis is done, it is important to ascertain if the property design in mind can be built on the selected site or not, as per the rules and regulations of the zone where the site is located.
Zoning Laws are a set of regulations and legal guidelines that
- Determine what kind of a structure can be constructed on the land
- Whether an existing property can be re-purposed
- If an old building can be demolished and a new one can be built.
Zoning Laws help to improve the quality of life for people in towns and cities.
Understanding zoning laws helps to create better project strategies and ensure successful and smooth implementation.
Also, read this ultimate guide on site analysis for real estate development, along with a real case study.
A real estate feasibility study is crucial to the success of a development project. It leads to a better development solution for a given site.
You should also explore below external contents on the real estate feasibility study:
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