Why do property developments fail?
No one plans to fail when it comes to developing property, unfortunately all too often there is a failure to plan. Though far from comprehensive, here are 7 common reasons that cause a property development to fail even before they get off the ground.
1. Failure to understand the market
• Failing to understand the market is one of the fundamental reasons for development projects failing. Who is your demographic? Who is buying developments in the area and at what price?
• Over specifying, underspecifying, bad design, under developing a block and over developing a block are just a few examples of how a project can miss the mark.
• The way a dwelling is specified, for example, can be very different if the target market is a sale or a rental market.
• Good design will always add value, but even with good design if a project doesn’t address the needs and wants of the market then it can be a costly oversight when it comes time to the financial realisation of the project.
2. Failure to clarify goals and objectives
• The first step in any successful development is to determine and prioritise the specific goals and objectives.
• This will form the frame work on which future design and development decisions are based.
• Failing to rigorously distinguish the project goals and objectives will lead to a lack of direction and clarity in the project.
3. Inadequate project feasibility
• Critical to any successful project is a comprehensive feasibility study.
• Understanding the site constraints/opportunities, planning processes and the financial risks are distinct, but closely interlinked, aspects of the overall project feasibility.
• Following the correct process is vital as missing an important step in any part of the feasibility can prove very costly and even render a project unviable.
• It is better to find this out early in the explorative stage of feasibility than through the project.
4. Incomplete project brief
• A high quality brief is essential as it forms the yardstick for the design, documentation and development decision making process.
• The brief sets up clear parameters for the project that will be continuously referenced during the life of the project.
• An incomplete brief can lead to delays, rework, misdirection and project scope creep.
5. Project size and scope
• It is important to consider the size of the development in relation to the proposed site.
• There are many factors that go into determining a suitable development for a particular site, these will need to be explored and evaluated during the feasibility stages.
• A development that is too large or inappropriate for the site can create lengthy delays during the planning stages and ultimately may be rejected by the governing body as an inappropriate development.
• Larger developments can take years to realise and all the associated costs for holding the project for this time must be carefully considered.
• A development that is too small will under capitalise the site and could cost a significant amount of profit.
6. Insufficient project contingency
• Even on the best planned projects there will always be unforeseen issues that arise during the design and development stages.
• Allowing for an adequate cost contingency is vital so as not to place undue financial pressure on the overall success of the project.
7. A poor sales & marketing plan
• A sound sales & marketing plan is an essential part of any good business plan.
• The sales & marketing plan forms a significant part of the initial project feasibility.
• With a critical focus on cost, all relevant avenues for marketing the project should be considered and explored.
• Selling the product to the target demographic with the correct price point is a cornerstone of any successful sales & marketing plan.