Feasibility Study

A feasibility study is the single most important document in property development. Before you buy the land, before you engage an architect, before you even shake hands on a deal — you run the numbers. If they don't stack up, you walk away. If they do, you move forward with confidence. Every dollar you commit before running a feasibility is a dollar you're gambling.

The core question is simple: what will it cost to build, what can you sell it for, and what's left over? But the detail underneath that question is where projects succeed or fail. A proper feasibility accounts for every cost you'll incur from the day you sign the contract of sale to the day the last settlement lands in your account.

Your feasibility starts with land acquisition. That's the purchase price, plus stamp duty (which in NSW can run 4-5% of the land value), plus legal costs for the conveyance. First-time developers often forget that stamp duty alone on a $1.5M site is roughly $65,000 to $70,000 — money you need upfront, before you've spent a cent on design or construction.

Next come your construction costs. This is usually the biggest single line item. It includes the building contract, site works, demolition, landscaping, and any authority contributions like Section 7.11 levies. You'll also need to account for professional fees — architect, engineer, surveyor, town planner, project manager. These typically run 8-12% of construction cost depending on project complexity.

Then there are selling costs. Agent commissions (typically 2-2.5% of the sale price in Australia), marketing spend, legal fees for contract preparation, and styling or staging costs. These add up fast. On a $5M gross realisation, selling costs can easily hit $150,000 to $200,000.

Holding costs are the line items that catch people out. Every month your project runs, you're paying interest on your development finance, council rates, land tax (if applicable), and insurance. On a leveraged project with a $3M debt facility at 8% interest, you're burning roughly $20,000 a month in interest alone. A three-month delay costs you $60,000 before you've even counted the extended prelims.

GST treatment deserves its own attention. If you're using the margin scheme (and most small developers should be for residential), you pay GST on the margin — the difference between what you sell for and what you paid for the land. If you're not using the margin scheme, GST applies to the full sale price. Getting this wrong can cost you tens of thousands. Talk to your accountant before you lock in your feasibility assumptions.

Don't forget contingency. A contingency of 5-10% on construction costs is standard practice. It's not padding — it's recognition that things go wrong. You'll hit unexpected rock, council will require a design change, or material prices will move. Without contingency, your first surprise variation eats directly into your profit.

So how do you measure whether a project stacks up? Development margin — your profit divided by total development costs, expressed as a percentage. Most lenders and experienced developers use 15-25% margin on cost as the benchmark. Below 15%, the project is too thin — one cost blowout or market dip wipes your profit. Above 25%, you've probably found a genuinely good deal (or your assumptions are too optimistic).

Here's a rough example. You buy land for $1M, total development costs come to $3.5M (including that land), and you sell the finished product for $4.4M. Your profit is $900,000, and your margin on cost is $900,000 divided by $3.5M — roughly 25.7%. That's a strong deal. But change one assumption — construction costs blow out 10% to $2.75M instead of $2.5M — and your margin drops to about 18.6%. Still viable, but significantly tighter.

This is why sensitivity analysis matters. You should test at least three scenarios: base case (your best estimate), downside (costs up 10%, sales down 10%), and worst case (costs up 15%, sales down 15%, timeline extended three months). If your project still returns a positive margin in the downside scenario, it can probably survive real-world conditions. If the downside scenario wipes your profit entirely, you're relying on everything going right. That's not a plan — it's a prayer.

First-time developers tend to make the same mistakes. They underestimate holding costs because they assume the project will run on time (it won't). They forget stamp duty in their land acquisition line. They don't model GST properly — or worse, they ignore it entirely and get a nasty surprise at BAS time. They use optimistic sales prices based on the agent's best-case pitch rather than comparable evidence. And they skip contingency because they "trust their builder."

So when should you walk away? If your base-case margin is below 15%, the deal is too thin unless you have exceptional cost certainty. If your downside scenario shows a loss, the risk isn't worth it. If the project requires assumptions you can't independently verify — like a rezoning approval, a sale price with no comparable evidence, or a construction cost based on a rough guess rather than a quantity surveyor's estimate — you're speculating, not developing. Walk away. There will be another deal.

The best developers we've worked with treat feasibility as a living document. They update it when they get a QS estimate, when they sign the building contract, when they secure finance, and when they adjust their sales strategy. A feasibility isn't something you do once to get a loan — it's the financial model you use to make every major decision on the project.