Feasibility practices of types of property developers

Abstract

PurposeThe purpose of this study is to analyse the current relationships between developer characteristics in terms of dominant property type (residential, commercial, retail, industrial, tourism, “other”), ownership (publicly listed, publicly unlisted, private, government), organisational structure (speculative-trader, investor developers, development managers) and size (small, medium, large) in the frequency of use and required minimum value of hurdle rate metrics.Design/methodology/approachA questionnaire survey of 225 Australian and New Zealand trader developers, development managers, investors, valuers, fund managers and government/charities/other relating to the feasibility practices of different types of Australia/New Zealand property development companies.Findings(1) Residential dominant developers are more likely to use margin on development cost (MDC) required to have a higher minimum internal rate of return (IRR) percentage; (2) investor developers are more likely to use the payback period as a hurdle rate, and specific hurdle rates as a part of a go/no-go decision; (3) trader developers adopt a higher percentage of IRR and deviate further from accepted financial theory in hurdle rate selection; and (4) national property development organisations in multiple geographic regions use qualitative frameworks more as a decision-making process and use MDC less as a hurdle rate.Practical implicationsThe study is limited to a sample of property practitioners working in Australia/New Zealand at the time of data collection in 2016 and, further empirical research is needed spatially and temporally to determine the extent of the findings. Further research is also needed with small- to medium-sized development organisations' on the extent to which they should use different metrics in project selection and for an improved understanding of the technical and attitudinal difficulties facing their current adoption.Originality/valueFirst study to examine the feasibility practices of different types of Australia/New Zealand property developers.

Real Estate Development Feasibility and Hurdle Rate Selection

“…Completing a feasibility analysis involves determining input costs, project duration, the impact of financing charges over time, and calculating the residual value and profit's present value (PV) [37]. Despite the complexity of quantitative analyses in feasibility software, the objective remains to gauge if forecasted profits are adequate when compared with identified risks, guiding the go/no-go decision [31,38].…”