How to Run a Feasibility Study for Property Development in Australia

A bad feasibility study doesn't just waste your time. It puts your money, your investors' money, and possibly your house on the line. According to the Australian Bureau of Statistics, total dwelling commencements fell 8.7% in 2023-24 — partly because tighter lending conditions mean lenders are scrutinising feasibility studies harder than ever. If your numbers don't stack up with precision, you won't get finance. Full stop.

This guide walks you through every component of a feasibility study for property development, from land acquisition costs through to sensitivity analysis. It's written for small Australian developers — the people actually buying sites, structuring deals, and taking the risk. Not for builders. Not for contractors. For you.

TL;DR: A feasibility study tells you whether a property development will make money before you commit capital. You need to model every cost (land, construction, professional fees, holding costs, GST, selling costs) against projected revenue, targeting a minimum 15-20% development margin on cost. According to the Property Council of Australia, most lenders require a pre-sales coverage ratio of 100% of debt before releasing construction finance. Get your feasibility wrong and you'll either overpay for land or run out of cash mid-build.

What Is a Feasibility Study in Property Development?

A feasibility study is a financial model that tests whether a development project will generate an acceptable profit. The Royal Institution of Chartered Surveyors (RICS) defines it as a "residual valuation" — you estimate total revenue, subtract all costs, and what's left is your profit (or loss). In Australia, most small developers target a development margin of 15-25% on total development cost.

But here's what the textbooks don't tell you. A feasibility isn't a one-and-done calculation. It's a living document. You'll run it first when you spot a site, again after the architect gives you a scheme, again after you get builder pricing, and again when you secure pre-sales. Each iteration gets more accurate, and each one might kill the deal.

The residual land value approach

Most experienced developers work backwards. You start with what the finished product will sell for, subtract every cost including your target profit margin, and what's left is the maximum you should pay for the land. This is called the residual land value method.

If the residual land value is less than the asking price, the deal doesn't work. Simple. Don't fall in love with a site and then try to make the numbers fit. That's how developers go broke.

Why spreadsheets are dangerous

I've seen developers lose six figures because of a broken formula in a spreadsheet. One wrong cell reference in your GST calculation, one copy-paste error in your construction cost column, and your 20% margin becomes 5%. In my own early projects, I found errors in my Excel feasibilities only after I'd exchanged contracts. That gut-dropping moment of recalculating and realising your margin has halved — I built software specifically so I'd never experience it again.

What Costs Go Into a Property Development Feasibility?

The average Australian residential development has 30-50 individual cost line items, according to analysis by Quantity Surveyors Australia (QSA). Missing even one — say, Section 94 contributions — can wipe thousands off your margin. Here's every category you need to model.

Land acquisition costs

This is usually your single biggest line item. It includes:

• Purchase price — what you're paying for the site
• Stamp duty — varies by state. In NSW, stamp duty on a $1.2M site is roughly $52,000 (Revenue NSW, 2026 rates). Queensland, Victoria, and other states have different scales
• Legal fees — typically $3,000-$8,000 for a standard acquisition
• Due diligence costs — surveys, geotech, contamination reports, town planning advice. Budget $10,000-$30,000 depending on site complexity

Don't forget holding costs on the land before construction starts. If you're paying interest on your land loan for 12 months while you get DA approval, that's real money.

Construction costs

The Rider Levett Bucknall Tender Price Index reported that Australian construction costs rose approximately 4.5% in 2025, following several years of elevated inflation. For budgeting purposes, here are rough ranges for residential development in metropolitan areas:

• Townhouses: $2,200-$3,200 per sqm (depending on finishes and location)
• Low-rise apartments (3-4 storeys): $3,000-$4,500 per sqm
• Site works and infrastructure: 5-10% of construction cost
• Landscaping: 2-4% of construction cost

These are build-cost-only figures. They don't include professional fees, council contributions, or your margin.

Professional fees

Budget 8-12% of construction cost for professional fees across the project. That typically breaks down as:

• Architect: 4-7% of construction cost
• Structural engineer: 1-2%
• Town planner: $10,000-$30,000 (flat fee for DA/CDC)
• Quantity surveyor: $5,000-$15,000
• Project manager: 2-4% of construction cost (if you're not managing it yourself)
• Surveyor: $5,000-$15,000 for subdivision and strata plans

Statutory costs and council contributions

These catch first-timers off guard. In NSW, Section 7.11 (formerly Section 94) contributions can run $20,000-$40,000 per dwelling in some council areas. On a recent 4-townhouse project in Western Sydney, council contributions alone totalled $112,000 — almost 10% of the build cost. Check your local council's contributions plan before you commit to a site.

DA fees, CDC fees, construction certificate fees, occupation certificate fees, and long-service levy (0.25% of construction cost in NSW, per the Building and Construction Industry Long Service Payments Corporation) all add up.

Selling costs

If you're selling the finished product:

• Agent commission: 1.5-2.5% of sale price (negotiate hard)
• Marketing: $5,000-$30,000 depending on the scale of your campaign
• Legal fees on sale: $1,500-$3,000 per lot
• Styling/staging: $3,000-$8,000 per dwelling

Holding and finance costs

This is where projects get squeezed. You're paying interest from the day you settle on the land until the day you sell the last unit. For a typical 18-24 month project:

• Land loan interest: Usually 6-9% per annum from a non-bank lender
• Construction finance interest: Drawn progressively as the builder claims
• Loan establishment fees: 1-2% of facility limit
• Valuation fees: $3,000-$10,000 for the lender's valuation
• Bank legal fees: You pay the lender's solicitor too — $5,000-$15,000

How long your project takes directly impacts your profit. A 6-month delay on a $3M construction loan at 8% interest costs you $120,000. Time kills deals.

GST considerations

GST on property development in Australia is complex. The Australian Taxation Office allows developers to use the margin scheme on residential property, meaning you pay GST only on the margin (sale price minus original purchase price of the land), not on the full sale price. This can save tens of thousands per unit.

But — and this is critical — you must elect the margin scheme at the time of sale. Your solicitor needs to get this right in the contract. Also, if you purchased the land from a GST-registered vendor who charged GST, different rules apply. Get proper tax advice. Don't guess.

Contingency

Every feasibility needs a contingency allowance. Industry standard is 5-10% of construction cost. First-time developers should sit at the higher end. Why? Because something always goes wrong. Bad ground conditions. Council conditions you didn't expect. Builder variations. Material price increases on a fixed-price contract that somehow aren't fixed.

How Do You Calculate Development Margin?

Development margin is the single number that determines whether your project is worth the risk. The API (Australian Property Institute) recognises two standard methods for calculating it, and confusing them is a common mistake that makes projects look more profitable than they actually are.

Margin on cost vs. margin on gross realisation

Margin on cost = Profit / Total Development Cost x 100

Margin on GR (gross realisation) = Profit / Total Revenue x 100

These give very different numbers for the same project. A project with a 20% margin on cost has roughly a 16.7% margin on gross realisation. Lenders typically assess margin on cost. When someone tells you their project "does 20%," ask them which method they're using.

What margin should you target?

There's no universal answer, but here are practical benchmarks:

• 15-20% margin on cost: Acceptable for a straightforward project with low risk (e.g., knock-down-rebuild duplex in an established suburb)
• 20-25% margin on cost: Target for projects with moderate risk (e.g., 4-8 unit townhouse development requiring DA)
• 25%+ margin on cost: Expected for higher-risk projects (e.g., apartment development, regional locations, complex sites)

The higher the risk, the higher the margin needs to be. A 15% margin might sound fine until you realise that a 10% cost blowout cuts your profit in half. Which brings us to sensitivity analysis.

What Does a Worked Example Look Like?

Let's walk through a real-world scenario. This is based on a composited example from projects in Western Sydney — the numbers are representative, not from a single project.

The site: A 1,200 sqm block in a R3 Medium Density zone, with capacity for 4 x 3-bedroom townhouses.

Revenue

Costs

Profit and margin

Wait — this project loses money? At $950,000 per townhouse, yes. This is exactly the point. A site that "looks good" at first glance can fall apart once you model every cost properly.

To make this project work at a 20% margin on cost, you'd need to either:

• Increase sale prices to $1,070,000 each ($4,280,000 total), or
• Reduce the land price to $830,000, or
• Cut construction costs by 20% (unlikely), or
• Some combination of all three

This is why you run the feasibility BEFORE you make an offer on the site. Not after.

Most first-time developers I've mentored get emotionally attached to a site before running the numbers. They find the block, imagine the finished product, maybe even name the project — and then try to make the feasibility work backwards. That's not analysis. That's confirmation bias with a spreadsheet.

How Do Lenders Assess Your Feasibility?

Australian development finance lenders don't just check your margin. They stress-test your entire model. According to Stamford Capital, one of Australia's largest development finance brokers, lenders typically require a minimum 15% margin on cost after applying their own conservative assumptions.

What lenders look for

Here's what a typical non-bank development lender wants to see:

• Pre-sales: Most lenders require pre-sales covering 100% of the debt facility. Some require 100% of total project costs. Without pre-sales, you're looking at higher interest rates and lower loan-to-value ratios
• Margin on cost: Minimum 15% after the lender applies their own conservative valuations (which are almost always lower than your numbers)
• Loan-to-value ratio (LVR): Typically 60-70% of gross realised value on completion
• Loan-to-cost ratio (LTC): Typically 65-80% of total development cost
• Builder qualifications: Licensed, insured, financially stable. Lenders will credit-check your builder
• Quantity surveyor report: Independent QS must verify your construction costs

The lender's feasibility vs. yours

Your feasibility will almost always look better than the lender's. Why? Because lenders use conservative sale price estimates (often 5-10% below your expectations), they apply higher contingencies, and they factor in slower sales timelines. If your project only works on optimistic assumptions, it won't get financed.

I've had lenders knock $50,000-$100,000 off individual unit valuations compared to my own estimates. It's frustrating, but it's also protective. If the project still stacks up under the lender's conservative numbers, you know you've got genuine margin.

What Is Sensitivity Analysis and Why Does It Matter?

Sensitivity analysis tests what happens to your profit when key variables change. The Altus Group Cost Guide shows that Australian construction costs have been volatile, with annual movements ranging from -1% to +12% over the past five years. A project that "works" on today's numbers might not survive a 10% cost increase.

How to run a basic sensitivity analysis

Test these three scenarios at minimum:

1. Construction costs increase 10% — Does the project still hit your minimum margin?
2. Sale prices drop 10% — Can you still service the debt and break even?
3. Timeline extends 6 months — What does the additional interest cost do to your margin?

Then test them in combination. A simultaneous 5% cost increase and 5% revenue decrease is not an unlikely scenario — it's basically what happened across most Australian markets in 2022-23.

The breakeven question

Every developer should know their breakeven point — the sale price at which profit hits zero. If your breakeven is only 5% below your expected sale price, you have almost no safety buffer. Good developers aim for at least a 15-20% gap between breakeven and expected sale prices.

What if interest rates move against you mid-project? On a $2M construction facility, each 1% rate increase costs roughly $10,000 over 12 months (assuming average 50% drawdown). Not catastrophic on its own, but stack it with other cost pressures and it compounds.

What Mistakes Do First-Time Developers Make?

According to a survey by the Urban Development Institute of Australia (UDIA), regulatory delays are the number one concern for Australian property developers, with 67% reporting that planning approval timelines significantly impacted project viability. But regulatory delays are just one of many traps. Here are the mistakes I see most often.

Underestimating holding costs

First-timers budget for construction costs but forget they're paying interest on the land loan for 12-18 months before the builder even starts. If your DA takes 9 months instead of 3, that's six extra months of interest. On a $1M land loan at 8%, that's $40,000 you didn't plan for.

Ignoring the GST margin scheme

Not understanding (or not electing) the GST margin scheme can cost you tens of thousands per dwelling. On a $950,000 townhouse where you paid $300,000 for the land component, the margin scheme means you pay GST on $650,000 instead of $950,000. That's a $27,273 saving per unit. Multiply that by four units and you've just found $109,000.

Using asking prices instead of sold data

Your feasibility is only as good as your revenue assumptions. Don't use listing prices or agent quotes — use actual comparable sales data from CoreLogic or Domain. Agents are incentivised to be optimistic. Recent sold prices don't lie.

Not accounting for time risk

Every month your project runs over schedule costs money. Finance costs, opportunity cost, market risk. Build realistic timelines. A 4-unit townhouse project from acquisition to settlement typically takes 24-30 months, not the 18 months you're hoping for.

Skipping the QS

A quantity surveyor costs $5,000-$15,000. Skipping them to "save money" and relying on a builder's rough estimate can expose you to six-figure surprises. The QS report also gives you credibility with your lender and a benchmark for assessing builder quotes.

The most expensive mistake isn't getting a number wrong. It's running the feasibility once, getting a good result, and never updating it. Your feasibility should be a living model that you update at every project milestone — after DA, after builder pricing, after pre-sales, after construction starts. The project you bought is never exactly the project you deliver.

When Should You Walk Away From a Deal?

Not every site is a deal. According to HTW (Herron Todd White) Month in Review, property valuers regularly assess development sites where the residual land value is below the asking price, indicating the market is pricing sites above what the economics can support. Walking away is the most profitable decision you'll ever make on a bad deal.

Red flags in your feasibility

Walk away when:

• Margin on cost is below 15% after conservative assumptions. There isn't enough buffer for things going wrong
• The project only works with optimistic revenue projections. If you need the market to go up 10% for the numbers to work, that's speculation, not development
• Holding costs consume more than 5% of total revenue. This usually means the project timeline is too long or the finance costs are too high
• Council contributions or infrastructure requirements are unusually high. Some sites require road widening, sewer upgrades, or stormwater detention that can add $200,000+ to costs
• You can't achieve pre-sales. If the market won't buy off-the-plan in that location, you'll struggle to get finance and you're carrying all the sales risk post-completion

The sunk cost trap

You've spent $20,000 on due diligence, architect fees, and town planning advice. The feasibility now shows a 10% margin. Do you proceed because you've already spent the money? No. That $20,000 is gone whether you proceed or not. Proceeding with a marginal project to "recover" due diligence costs is how developers turn a $20,000 write-off into a $200,000 loss.

The best developers I know kill more deals than they do. That discipline is what keeps them in business.

How Do You Move From Spreadsheet to System?

Running a feasibility in a spreadsheet works — until it doesn't. A KPMG Australia report on the building industry found that small-to-medium developers consistently rank administrative burden and data management as top operational challenges. The problem isn't that spreadsheets can't do the maths. The problem is that they break silently.

One wrong cell reference. One copy-paste error. One formula that doesn't update when you add a row. You won't catch it until the damage is done. And when you're managing a multi-million dollar project, "close enough" isn't good enough.

Purpose-built feasibility tools structure the calculation so you can't accidentally skip a cost category, so your GST calculations are always consistent, and so sensitivity analysis is automatic rather than something you build from scratch each time. They also make it trivial to run multiple scenarios side by side — comparing what happens if you build 3 units vs. 4, or if you value-engineer the finishes down a grade.

I built UpScale.Build specifically because I was tired of maintaining fragile spreadsheets across multiple projects. The feasibility module covers every cost category outlined in this guide — land, construction, professional fees, statutory costs, selling costs, holding costs, and GST — with built-in sensitivity analysis. It's free to try on your first project.

That said, whatever tool you use — spreadsheet, software, or napkin — the principles in this guide don't change. Get the inputs right, be conservative with your assumptions, and update the model at every milestone.

Frequently Asked Questions

How long does it take to run a feasibility study for property development?

A preliminary feasibility can take as little as a few hours if you have good comparable sales data and a rough construction cost estimate. A detailed feasibility — with QS-verified construction costs, confirmed council contributions, and finance terms — typically takes 2-4 weeks. According to the Property Council of Australia, most lenders expect a fully documented feasibility before issuing a credit-approved term sheet.

What is a good development margin in Australia?

Most Australian property developers target 15-25% margin on total development cost. A 15% margin is acceptable for low-risk projects like duplex builds in established suburbs. For projects requiring development approval, carrying sales risk, or in volatile markets, target 20-25% or higher. Always calculate margin on cost — not margin on gross realisation — to align with how lenders assess your project.

Do I need a quantity surveyor for my feasibility study?

For any project over $500,000 in construction cost, yes. A QS provides an independent cost estimate that gives you and your lender confidence in the construction budget. The cost is $5,000-$15,000 — trivial compared to the financial exposure of getting construction costs wrong. Many lenders won't approve construction finance without an independent QS report.

How does GST affect property development feasibility in Australia?

New residential property is subject to GST. The ATO's margin scheme allows you to calculate GST on the difference between sale price and original land cost, rather than the full sale price. On a $950,000 townhouse with a $300,000 land component, the margin scheme saves approximately $27,273 in GST per unit. You must elect the margin scheme in the sale contract — it can't be applied retrospectively.

What is the residual land value method?

The residual land value method works backwards from expected revenue. You estimate total sale proceeds, subtract all development costs (including your target profit margin), and the remainder is the maximum you should pay for the land. If the asking price exceeds the residual land value, the project isn't viable at that price. This method is endorsed by RICS and used by valuers, developers, and lenders across Australia.

This guide is for educational purposes and does not constitute financial, legal, or tax advice. Always engage qualified professionals — including accountants, solicitors, and quantity surveyors — before committing to a property development project.

Meta description: Learn how to run a feasibility study for property development in Australia. Covers all costs, margin calculation, sensitivity analysis, and the 15-25% margin target lenders expect.