What are the stages in real estate life cycle
The need for Land development is constant because of our massive population growth and the changing tastes of how we want to live. Real estate life cycle typically happens in all major real estate markets around the world. It can be divided into 3 stages:
Pre-development stage, Development stage and Developed stage.
- Pre-development stage:
Pre-development stage can be further subdivided into 2 phases. Early Raw land phase typically refer to Land that is in the primitive form and not in demand yet. It might be far away from city, and land price at this stage is the lowest as the demand is low.
When population grows, and city boarder has expanded, the government typically needs to convert the Raw land into Urban Reserve Land (URA) phase to indicate for potential development for specific land usage. Land price at this stage would increase as the demand would naturally increase. It is at this stage where concept planning is needed. The appointed agency will need to work hand in hand with the local government to come up with the master blueprint that meets the needs of the city. Eventually, the land is rezoned into either commercial, industrial or residential purposes for actual development.
Time taken for the pre-development phase is difficult to predict, and hence it is always one of the most non-liquid stage in term of ownership transfer.
- Development stage:
Once the land has been rezoned and ready for development, developers can now buy over and take it further for building and construction. This is where the very visible part of real estate happens as bulldozers start to move in and things get built up.
A real estate developer is a real estate professional who specializes in creating new developments or renovating existing ones, followed by marketing them successfully, and selling them. Developers tend to work on a big scale, constructing multiple units which may extend into the thousands or renovating a building to create a number of saleable units in the form of offices, retail spaces, apartments, and so forth.
Time taken for the development stage is more predictable, as developer will not buy to hold, but simply buy to build and sell directly.
- Developed stage:
Most of us are more familiar with the real estate market at the end product stage, where we buy a condo, home or shophouse at the end stage. Everyone can participate at this phase, but it is also the most speculative stage where price is determined by supply and demand.
What are the stages in Real Estate Development?
Real Estate environment such as houses, apartments, office buildings, shopping complexes, etc. don't just happen. Someone must be motivated enough to manage the creation and eventually the recreation of the spaces in which we live, work and play. The below stages depict the typical flow in real estate development:
- Sourcing
Developers need to assess a wide variety of potential sites and determine whether or not they will be workable, acceptable, and within budget. He or she can look at an empty lot and find potential in it, or tour a decaying building and create a vision for remodelling and sell it away successfully. The process can sometimes take weeks of research whereby an extensive network of real estate agents, brokers and industry contacts are deployed.
- Assessment
To ensure minimum risk, developer needs to follow strict assessment guidelines. These include preliminary feasibility studies, market research, resale values in the area and other factors. Historical and future market trend analysis is required to assess the impact on profitability. This is to ensure the final buying decisions are based on financial facts, and not opinions or emotions. Regardless of how good a deal may seem, if the figures don't add up, it cannot proceed.
- Acquiring
Developers need to secure finance to purchase the land. Sometimes, developers need to find suitable financial partners to join forces with. This is a great way of getting into property development when you've only a small amount of money to invest initially. This is the stage where funding is need for further construction of the actual building. Beside the developers' own finance, bank loan or investment from high net worth individuals are the typical source of funding. For small developers, this might post a challenge, as they do not have much track record, and hence would not be able to get the funding easily.
- Acquiring
Once the property is purchased, the aim is to manage the whole process on time and follow through every stage of the development. Below are some of the key management steps required:
- Co-ordination for development application and submission to the local authority
- Liaise with the Council regarding development approval issues
- Liaise with council, consultants & contractors post approval to ensure that all the necessary operational works approvals/ permits and construction tenders have been obtained
- Commission all works and obtain final clearances for all operational works and services connections.
- Apart from sourcing a builder, supervision is also required for all construction work so as to keep check to ensure conformity.
- Marketing
Developers typically adopt online marketing strategy and engage real estate agency to market the projects. Projects websites would be created to attract potential buyers. Very often email and social media marketing campaigns are adopted. This traditional method is still cost-effective and remains to be a good way of tracking the marketing efforts.
Is there a good or bad time for real estate development?
There is no good time or bad time for property development. If the feasibility study and due diligent check are done correctly and conservatively, a real estate development can be successful in any economic environment. A sensible developer will always take into account the current market conditions when doing a feasibility study. For example, it would be practical to factor in longer selling times if the market is slow, or factor in higher buying prices for the site when the market is hot.
How can I become a Real Estate Developer/co-developer?
Over the years, many successful real estate developers have started the construction business and evolved into developers starting with small projects, followed by working their way up to larger deals. Many developers first work for a real estate developer in various capacities (leasing, management or project management) and finally branch out on their own after years of learning the business.
Property development is a smart way to get the money working harder and faster but there's a lot to take into consideration. Hence, not many people will have the time and be able to do it. However, there is another way of getting a slice of real estate development. It is through Co-development in the project.
The Co-development agreement is for use by two parties who are looking to enter a relationship to develop a common real estate. The agreement covers the purpose of the agreement in more exacting terms, as well as the mutual covenants to the agreement.
Through investing in Fundhive.com platform, investors can participate to become a co-developer where investors' fund will be directly channelled into the construction of the building. It is a hassle free investment in Fundhive.com setup as investors' co-development share is usually less than 49%, while the experienced developers take charge of all the directions and decisions.