Real Estate DeveloperConstruction of condominiums, villas, resorts, shopping malls, theme parks, subdivisions, sports arenas or any other structures put up in a specific location whose intentions are to increase land valuation of the general area in question is primarily what Real Estate Developers do and are on the lookout for. The success of a project depends solely on the vision of a developer. Development projects fail only when the developer fails to consider every aspect of the project which includes source of financing, cost of financing, the market, and, of course, the timing.
Source of financing usually are banks or consortium of banks. Even though the developers have enough capital to finance the project on their own, they would still opt to have financing because a bank approval for a loan will give the project further credibility. A loan grant from banks would mean that the project is viewed as viable and the risks were properly assessed. Some financers are investors who would agree to infuse capital in exchange for a stake in the project. The cost of financing, if the project would depend from a loan, has also somewhat caused the demise of several Real Estate Developers so it would be prudent for developers to know this. If the loan was, let’s say, sourced from abroad and then devaluation suddenly struck like the one that hit the Thai Baht in 1997 where the Baht weakened against the dollar sharply, developers in Thailand who acquired foreign loans suddenly found themselves having higher amounts to pay for their dollar loans when expressed in the local currency.
Cost of financing also pertains to the interest rates. If the approved loan is on a prevailing market terms then a jump in interest rates, then the cost of doing the project have also increased and the projections previously forecasted are now wrong. Proper assessment of the demand is also very important.
Finishing a project is one thing but if the project have no end-users to draw profit from then it is also considered a failure. This happens usually to condominium projects. When the units don’t sell after turnover time, usually what happens is that units are forced to be sold at very low prices than originally intended, hence profits are not realized.
And lastly, the timing of the project can also determine the success of the project. Because real estate boom cycles tend to last around 18 years before going bust, the developer who can time on developing and marketing their projects during the boom times would usually make huge profits. However, some developers are so greedy and get whiplashed because they keep believing that the boom times would not end and kept on starting new development projects until suddenly they’re in a middle of a real estate bust and they have numerous projects still far from being finished. A cautious developer would not start several projects at the end tail of a boom cycle.
Undertaking real estate development projects is not as simple back then as there are lots of complicated factors now to consider. The good news, however, is that there are now courses being offered that focuses on understanding the different factors affecting the real estate sector and their potential impact. Hopefully, those who want be serious as Real Estate Developers should take advantage of these courses so as not to repeat the mistakes of the past.