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Is a development the best option during a building boom?

Tuesday, 7th Apr 2015

building boomResidential building approvals in Western Australia hit record highs over the past year, but is it a good time to start your own development?

The number of residential buildings approved for construction in WA reached an average of 2,680 dwellings per month in 2014, according to the Australian Bureau of Statistics.

That is more than 30% higher than the state’s decade average, which stands at 2,043 per month.

There are a numerous factors that have driven the high number of building approvals in WA including record-low interest rates and high population growth.

Another major factor has been the increase in the number of large apartment projects being approved for construction in the Perth central business district (CBD).

However, with such a high amount of activity in the residential construction sector, is it a good time to undertake your own development?

The short answer is yes it is – in the right locations.

There remains opportunities in the Perth market to make a large profit from property development.

However, as is the case in any other economic environment, research is the key to help ensure you mitigate the risks and maximise the profits.

Before you start a development you need to gain a firm understanding of the industry and its intricacies, including how it works and who specialises in what services.

You also need to understand the state of the market – what stage of the growth cycle is the city and selected suburb in? Will the type of development be in demand in that suburb and what price can you receive?

It’s important to spend time researching sites until you have found a project that fits your specifications. Following this, it’s essential to complete a feasibility study to make sure it meets all your requirements and whether you can make an adequate profit.

Once you’ve chosen your site, you’ll have to tactfully acquire it, properly structure your finances and deal with designers and builders.

However, success in property development all starts with comprehensive research and securing the right location.

For example, choosing a development site in Perth’s CBD for a small apartment complex is unlikely to be profitable given the high number of large apartment towers currently planned or under construction.

However, a small, multi-residential development several kilometres from the CBD, but close to a train line, parks and a vibrant activity centre, would typically pose a better investment.

Therefore, undertaking adequate research, completing due diligence and utilising professional services firms where necessary will help to reduce risks and maximise profits for any development project.