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What Does a Property Development Feasibility Study Include?

⚠ General Information Only

This article is for educational and informational purposes only. It does not constitute financial, investment, or legal advice. Barossa Properties is not a licensed financial adviser. All investment decisions should be made only after obtaining independent legal, financial, and taxation advice from qualified professionals. Past project performance does not predict future results.

A feasibility study is the financial and analytical foundation of any development project. A rigorous one tells you whether a project is worth pursuing. A superficial one gives false confidence and leads to poor outcomes.

This article explains every component a credible feasibility model should cover and why each one matters.

The Core Structure: Costs vs Revenue

At its simplest, a development feasibility compares total project costs against projected revenue to determine profitability. But the value of a feasibility model lies entirely in the quality and completeness of the assumptions that go into it.

Revenue Inputs

  1. Gross realisation value (GRV) : the estimated total sales value of all lots or dwellings at completion, based on current comparable sales evidence.
  2. Achievable pricing assumptions : conservative vs optimistic scenarios, accounting for market movement over the project timeline.
  3. Sales agent and marketing costs : typically 2–3% of gross sales, including advertising and agent commission.
  4. GST on sales : development sales attract GST (with margin scheme calculations where applicable).

Cost Inputs

  1. Land acquisition cost : purchase price plus stamp duty and acquisition costs.
  2. Construction costs : civil works, building construction (if applicable), contingency buffer (typically 10–15%).
  3. Council contributions (Section 7.11 / 7.12) : statutory contributions payable to council per lot created. These vary significantly by council and can be substantial.
  4. Holding costs : loan interest, council rates, insurance, and other ongoing costs during the development period.
  5. Consultants and professional fees : town planners, engineers (civil, structural, geotechnical), surveyors, architects, building certifiers, lawyers.
  6. Finance costs : establishment fees, ongoing line fees, exit fees on development finance.
  7. Project management : developer margin or management fee.
  8. Contingency : a general buffer for unforeseen costs. Conservative models include 10–15% on construction and professional fees.

The Key Output: Profit on Cost

The most important number in any feasibility model is profit on cost (POC)  the net project profit as a percentage of total project cost.

Profit on Cost = (Net Profit ÷ Total Project Cost) × 100

A POC of 15–20% is typically considered the minimum viable threshold for a residential development project. Projects below this level carry insufficient margin to absorb unexpected cost increases or revenue shortfalls.

Conservative assumptions are not pessimism they are discipline. A feasibility model built on best case assumptions is not a feasibility study; it is a hope. Every cost line should be modelled at 10–15% above current quotes; every revenue line should be modelled 5–10% below current market evidence. The project should still work.

Sensitivity Analysis

A complete feasibility study also includes sensitivity analysis testing how the profit changes if key variables move adversely. Specifically:

  1. What happens to profitability if construction costs increase by 10%?
  2. What if sales values fall 10% from today’s levels?
  3. What if the project takes 6 months longer than planned?
  4. What is the breakeven sales price the minimum the lots need to sell for to return all capital?

If a project fails sensitivity testing under modest adverse scenarios, it does not have sufficient margin to justify proceeding.

Feasibility Checklist

  1. Revenue: gross realisation, agent costs, GST.
  2. Costs: land, construction, council contributions, holding, consultants, finance, contingency.
  3. Key metric: Profit on Cost target 15–20%+ minimum on conservative assumptions.
  4. Sensitivity analysis: project must remain viable if costs rise 10% or revenue falls 10%

⚠ Important Disclaimer

This article is general information only. Feasibility benchmarks cited (such as profit on cost thresholds) are general industry references and do not constitute advice about any specific project or investment opportunity. Actual project outcomes vary based on many specific variables. Independent financial, legal, and development advisory advice should be obtained before making any decision based on feasibility analysis.

Barossa Properties Pty Ltd is not a licensed financial services provider. Nothing in this article constitutes financial advice.