The first step of any property development project is to, of course, locate the site that you actually want to develop. Choosing property development sites is arguably the most important step of the process. If you pick a bad site, the project can be doomed from the start. This is why we are meticulous with our due diligence when it comes to choosing our property development sites.
How to locate property development sites
It’s generally better to seek out a development site specifically for the purposes of developing it, rather than trying to force a development onto land that you may happen to already have.
When evaluating potential areas for a development, the most obvious metric to look at is rising prices—if you buy a site in an area with rising prices, you’ll easily make a profit, right?
Unfortunately, this can be a trap. Remember, completing a property development will take at least two years. And if it’s your first development, it’ll almost certainly take longer than that to complete. You have to account for the lead time of actually completing the development. Prices are rising now, but will they still be rising when the project completes? Property prices are generally cyclical, with a period of growth being followed by a drop, or “correction”.
To take into account the lead time of completing the development, we find it better to look for areas that are on the cusp of growth, but haven’t quite realised it. That way, when the time comes to sell, you should be in the middle of a growth period, not past it. You can still make a profit from a development even if you time the market wrong, but you’ll make more profit if you can time your development with the market.
Finding growth potential
There are a few factors that you can use to help identify areas that are on the cusp of growth. Future population growth is an important one, and you can measure this by looking at statistics such as net migration: are more people moving to an area than are leaving it.
Planned infrastructure upgrades are another reliable indicator. People want to live in nice areas, and so we can reasonably assume that more people will move to an area as it becomes more desirable. So things like road upgrades, public transport improvements, and new parks or amenities will generally lead to increased prices.
Employment hubs are worth keeping an eye on, because people will often pay a premium to live closer to work. For example, if a new hospital is built, you can expect the prices of property in a ring around it to increase in value, as doctors, nurses, hospital staff, and even regular patients move closer to work. We’ve done a lot of developments in Brisbane’s northern suburbs, because these sites were located near the CBD, the Airport, and the Trade Coast—a trifecta of employment hubs.
Even other private developments can boost house prices. Much like a hospital, a new shopping mall or commercial district will see increased demand for homes that are close to it .
By looking at upgrades and developments that are planned as opposed to already completed, you can get in early and start your development while prices are still low. Remember, you need to account for the lead time of actually completing the development.
Ultimately, the most important thing is to remain objective and remove emotion from the process. You might think that a site should be good, but if the numbers don’t add up, it’s in your best interests to move on and find another site. ∎
For more information about property development and the process that we use to undertake our developments, make sure to download our Property Development Process Guide eBook.
