What are the top 4 challenges facing property developers?
Developing property can generate an excellent return on investment for those willing to take the risk. As cities evolve and populations grow, the demand for innovative, sustainable and strategically planned developments has never been higher. To reap the rewards, development projects often require extensive planning, risk assessment and funding.
To help strategise for success, Wharf Financial has created a list of the top 4 challenges facing developers in the current climate, so you can be armed for success.
Financing and Cost Management
Property development involves careful planning and cash flow management from start to finish. Important considerations include fluctuating finance, materials and labour costs. All of which are impacted by economic volatility.
In the early stages of project planning, developers may benefit from seeking multiple sources of financing to navigate complex lending requirements and regulations. That’s where the value of a broker is demonstrated. By using their knowledge to structure finance effectively, an experienced adviser will be able to negotiate competitively on the developer’s behalf to secure the most suitable facility.
It’s also inevitable that developers will face unforeseen hurdles along the way. Being able to effectively calculate risk by weighing up the pros and cons should help to reduce overspending.
Our advice? Maintain real-time financial planning control to minimise cost overruns. Be cautious with spending but be sure not to cut corners that may have a knock-on effect further down the project line.
Economic Challenges
Unsurprisingly, economic volatility is a significant factor impacting property developers. Fluctuating interest rates and overall increased costs can contribute to some uncertainties and a delay in project completion.
But don’t let the current economic landscape put you off. With inflation at the root cause of why many developers are seeking further finance, it is also resulting in some positives.
Firstly, remember that the current climate won’t last forever. Whilst interest rates are currently high, they are beginning to fall. Secondly, property values are set to increase over the next 12 months when compared against the value that may have obtained from a sale 2 years ago.
What’s more, if you’re a developer looking at retaining the property, there is also an increased demand for rentals as they fetch better yields long term.
Regulatory Compliance
One of the key challenges in property development is navigating legislative, statutory and regulatory compliance. Misunderstanding, misrecording, or even failing to act on these necessities can lead to delays or refusals when it comes to securing the required permissions.
Just as important are sustainability and safety regulations, which are still a top compliance priority. Developers need to make sure they fully understand these rules, but bringing in the right experts to handle them efficiently will help. With the extensive paperwork, authorisations and approvals involved, it’s essential to assign clear responsibilities early on. Naturally, manual processes can lead to mistakes, so using automation and technology where possible can help reduce the risk of human error, helping to ease peace of mind.
PRO TIP: Challenges with building safety and sustainability compliance can lead to hefty payouts and exceeded budgets. Make sure you keep an eye on finances if you stumbled across any hurdles!
Supply Chain Challenges
Supply chain challenges in property development is multi-faceted. Not only are developers battling material shortages and delivery delays, but there are also increased material costs, labour shortages and global conflicts to consider. All of which may drive up material costs.
High demand of essential construction materials such as steel, cement and timber can cause delays in project timelines. Similarly, volatility in the cost of the materials may also have an impact.
Logistical challenges can also impact the delivery of materials, workers and machinery, so it’s important for developers to have a solid project plan whilst considering the ‘what ifs’… just in case.
Is property development worth it?
Despite these four challenges, property development is still a highly lucrative exercise. For investors looking to create wealth and diversify investment, property development offers an attractive solution. It continues to be dynamic and growing sector with constant demand for new housing, offices, retail spaces, student accommodation and new infrastructure. As populations increase and cities expand, developers will continue to have more opportunities to capitalise on changing market needs.
If you’re keen to explore property development and would like to speak to an experienced team of experts who can find effectively finance solutions for your project, contact us today.
