Pathways to Property

Alternative Investments  Before an investor or developer decides to invest money into property, they will look at the risk and return profile of a range of alternative investments  Company Shares Government Bonds Works of Art   

STAGE 1 Analysis of Demand/Supply  An investor will examine the market demand for different types of property in particular areas, as well as the supply of property in those places.  According to many real estate economists , the balance of demand and supply is what triggers the decision to develop. 

STAGE 2 Decision to Develop  Taking into account; alternative investment opportunities, market demand, competing supply and company's strategic objectives, the investor/developer will start to look for specific sites to build their new property (or purchase an existing one).

STAGE 3 Site Finding Site finding is a job in itself and involves a range of techniques which includes checking newspaper adverts, auditing local planning documents, perusing maps, talking to estate agents, walking or driving around preferred locations and monitoring lists of government land tenders 

STAGE 4  Development Appraisal  Once a site or shortlist sites has been identified, the developer investor will undertake an initial financial appraisal of development options. This is often said to be done 'on the back of an envelope' and this term suggests the provisional nature of the early appraisals. As the development proposal gets firmer into more detailed, the appraisals will similarly get more thorough. At its most basic, a development appraisal will add up the likely returns from the scheme and subtract the likely costs, leaving a 'residual' amount of money that the developer can bid for the land. 

STAGE 5  Land Assembly  Getting legal title to land so a developer can build is another potentially complex stage of the process. Although not often explicitly expressed, there is a struggle between landowners and developers for the profits from land development. This leads developers to use a range of strategies ad techniques to minimise the risks involved when purchasing potential development sites. They will often buy land in advance of development , creating a 'land bank' with a portfolio of sites with or without planning permission. Other ways of managing risk is to enter into some arrangement with the land-owner to share the risks and rewards.