Every property development success starts with one question: will the numbers work? Whether you're building a granny flat, dual occupancy, or subdivision, understanding feasibility is what separates profitable projects from expensive mistakes.
This is the simple framework professional developers use, and how to apply it to your project.
The Basic Feasibility Formula
Development Margin = (End Value − Total Costs) ÷ Total Costs
Professional developers typically target a 15 to 20% margin as their minimum. Below 15%, the risk usually outweighs the reward.
Step 1: Calculate Gross Realisation (End Value)
This is what your completed development will sell for. Be conservative and use recent comparable sales, not agent estimates.
Example: dual occupancy
- House 1 (3 bed): $950,000
- House 2 (2 bed): $780,000
- Total Gross Realisation: $1,730,000
Step 2: Calculate Total Costs
Most first-time developers underestimate costs by 20 to 30%. This is the complete list:
Acquisition Costs
- Purchase price
- Stamp duty (approx 4 to 5.5% depending on state)
- Legal/conveyancing: $1,500 to $3,000
- Building inspection: $500 to $800
Holding Costs (Budget 12 to 18 months)
- Mortgage interest on land
- Council rates
- Insurance
- Land tax (if applicable)
Professional Fees
- Town planner: $3,000 to $8,000
- Architect/draftsman: $8,000 to $25,000
- Engineer: $2,000 to $5,000
- Surveyor: $1,500 to $3,000
- BASIX assessor: $500 to $800
- Contamination/acid sulfate reports (if required): $2,000 to $5,000
Construction Costs
Use $2,000 to $3,500 per square metre depending on quality and location. Don't forget:
- Demolition: $15,000 to $40,000
- Site works (retaining, excavation): $10,000 to $50,000
- Landscaping and driveways: $15,000 to $40,000
- Contingency (10 to 15% of construction): essential
Approval and Compliance Costs
- DA/CDC fees: $2,000 to $10,000
- Section 7.11 contributions (formerly Section 94) (varies by council): $10,000 to $40,000
- Water/sewer headworks: $5,000 to $25,000
- Construction certificate: $1,500 to $3,000
- Occupation certificate: $1,000 to $2,000
Selling Costs
- Agent commission: 1.5 to 2.5%
- Marketing: $5,000 to $15,000
- Staging (if selling vacant): $3,000 to $8,000
Step 3: Calculate Your Margin
Example: dual occupancy development
| Gross Realisation | $1,730,000 |
| Land purchase ($900k + stamp duty $35k) | −$935,000 |
| Holding costs (12 months) | −$45,000 |
| Professional fees | −$25,000 |
| Construction ($650k + $100k site works) | −$750,000 |
| Approvals and contributions | −$35,000 |
| Selling costs (2% + marketing) | −$50,000 |
| Total Costs | $1,840,000 |
| Project Profit/Loss | −$110,000 |
This deal loses money. You'd need to either buy the land for ~$750k, build for ~$550k, or sell for ~$2.1m to make it work.
Step 4: The Sensitivity Test
Before committing, test what happens if:
- Construction costs blow out by 15%?
- Timeline extends by 6 months (more holding costs)?
- End values drop by 10%?
- Interest rates rise another 1%?
If your project still works under these scenarios, it's likely a safe bet. If not, reconsider.
Quick Feasibility Rules of Thumb
- Granny flat: Build cost $180k to $250k. Must rent for $400+/week or add $200k+ to sale price.
- Dual occupancy: Combined end value should be 1.6 to 1.8x total costs.
- Subdivision: Each new lot should be worth 40 to 50% more than its share of acquisition + costs.
When to Walk Away
Not every site is a development opportunity. Walk away if:
- You can't achieve at least 15% margin conservatively
- The site has multiple constraints (flood + bushfire + heritage)
- Comparable sales don't support your end value
- You'd need to sell in a falling market
The best developers say "no" to 90% of opportunities. Patience and discipline beat optimism every time.
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