how real estate developers turn dust to cash

By

Arch. Cristina Ang

UAP, PIEP, CREB

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graduate of University of the Philippines, School of Architecture and Technology Management. She lectures on Real Estate Property Development and conducts industry training seminars on real estate market feasibility analysis and development. She is an architect and urban planner, and works extensively with the top developers in the country.

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Concept SITE Selectionpreliminary market FEASIBILITYstudy

preliminary PLANS & specifications

mortgage / financingfinal market feasibility STUDYwww.spacef0rms.ph

Developing the CONCEPTtechnical plans & specifications

Project COSTS financial analysisRISK AnalysisConstructionMarketing and Selling

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CONCEPT

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The real estate developer must first have an IDEA, usually based on:

experience in the market place,

or intuition about a residential real estate development that he/she believes the market demands. www.spacef0rms.ph

SITE SELECTION

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define the market areaLooking for potential sites SITE SELECTION & EVALUATION

OFFER

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FEASIBILITY

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… travel with an easy heart and happy expectations…

Engage an independent real estate expert

Market research demand analysis An accurate preliminary analysis of demand is

critical to the market feasibility of any project. existing and planned project competition if the existing competing developments that are

available > the forecasted demand, then the developer should not pursue the project. www.spacef0rms.ph

PLANSwww.spacef0rms.ph

Engaging an architect / env. plannerPreliminary technical plans road layouts, preliminary designs, number of lots,

etc.Preliminary cost estimates including financial analysis using DCFCoordination with planning authoritiesIf a zoning change is necessary, it should be coordinated for

review and approval early in the development process.

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FINANCING

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Engaging an architect / env. plannerpreliminary market feasibility studypreliminary plans and specificationsProject descriptionproposed mortgage loan terms and conditions

financial statementresume showing the developer’s experience

FEASIBILITY

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After securing a mortgage loan commitment,

detailed analysis of the population demographics

existing and potential competitors

Supply and demand analysisEst. lot absorption & prices

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FINAL PLANS

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final technical drawings for the roads, the structures, exact legal

descriptions of each lot, the plating and staking of the lots, as well as any engineering drawings regarding earth moving, and utility layouts

COORDINATION with contractor and utility companies

close the development loan to acquire the property, and begin

construction of the roads, utilities, and lots

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COST ESTIMATES

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Direct costs land acquisition costs, engineering costs,

construction costs, and marketing costs. Indirect Costs professional and consultancy fees – such

as market feasibility analysis and appraisal, legal and accounting fees, and financing costs

*contingency fund for unexpected additional costs.

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FINANCIAL ANALYSIS

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Shows the PV of the cash outflows & inflows, and the project NPV

thru the DCF, the development project can be objectively assessed as attractive or not.

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RISK ANALYSIS

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primary risk - marketing risk or the risk of xx lots per quarter at the average xx price per lot.

additional risks such as development costs overruns, bad weather, increased interest rates, labor strikes, and others.

*breakeven point analysiswww.spacef0rms.ph

CONSTRUCTION

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Even during the initial phases of the development, it’s advisable to coordinate with -

ContractorsUtility companiesauthorities

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MARKETING

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Promotion, marketing and salesAn in-house marketing salesperson or

local real estate brokerage firm can conduct the sale of lots

In either case, the sales commissions are a marginal expense and should be considered in the financial forecasts.

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CONCLUSION

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Real estate development can be very exciting, requires you to be creative, but can be profitable.

there are real risks associated with real estate development because risks and returns are directly related, and expected high returns usually indicate high risks

Large developments that require huge initial development costs and longer absorption periods are considerably more risky than smaller developments

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Arch. Cristina Ang+63 917 792 6322

… stop searching forever, happiness is sitting next to

you…

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