A feasibility model is the single most important document in any property development. It determines whether a project should proceed, what price to pay for the site, and how much capital is needed. Yet many developers — particularly those entering their first or second project — underestimate what a thorough feasibility requires. This guide covers the essentials and highlights the items most commonly overlooked.
What a Feasibility Model Does
A feasibility model projects the financial outcome of a development from acquisition through to settlement. It answers three questions: is the project profitable, how much capital is required, and what happens if assumptions change. The model is not a prediction. It is a planning tool that allows you to test scenarios and make informed decisions before committing capital.
The Revenue Side: Gross Realisation
Start with what you can sell the finished product for. Gross realisation (GR) is calculated by multiplying each product type by its expected sale price. For a townhouse development, this means pricing each dwelling based on comparable sales evidence in the immediate area. The most common mistake on the revenue side is optimism. Developers often benchmark against the best sale in the suburb rather than the median. Use conservative, evidence-based pricing. If you need premium pricing to make the project work, the project may not work.
The Cost Side: Total Development Cost
Total development cost includes every expense from site acquisition to final settlement. A comprehensive model includes land cost and stamp duty, legal and conveyancing fees for acquisition, planning and design consultant fees covering architects, engineers, surveyors, town planners, and energy assessors, council and statutory fees including development application fees, infrastructure contributions, and open space levies, construction costs as the largest line item, utility connection charges for water, sewer, power, and telecommunications, finance costs including establishment fees, interest, and line fees, sales and marketing costs, project management fees, contingency allowance, and GST considerations.
What Most Developers Forget
Several cost categories are routinely underestimated or omitted entirely. Holding costs between settlement and construction start can be significant, particularly if planning approval is delayed. Site remediation costs for contaminated land, unexpected rock, or asbestos removal frequently surprise first-time developers. Utility connection charges from SA Water and power authorities are often larger than anticipated. Council infrastructure contributions vary significantly between councils and can add tens of thousands per allotment. Legal costs for multiple settlements, subdivision documentation, and contract preparation add up. Marketing costs for professional photography, signage, digital campaigns, and agent commissions need realistic budgeting.
The Residual Land Value Approach
Rather than starting with the land price and calculating profit, experienced developers work backwards. Start with the realistic gross realisation, deduct all non-land development costs and target profit margin, and the remaining figure is the maximum you should pay for the site — the residual land value (RLV). This approach ensures you do not overpay for land and lock in an unviable project from the start.
Stress Testing Your Model
A feasibility that only shows the base case is incomplete. Every model should be tested against scenarios where construction costs increase by ten per cent, sale prices decrease by ten per cent, the project timeline extends by three to six months, and a combination of adverse scenarios occurs. If the project remains viable under moderate stress, it has reasonable resilience. If a small change in any single variable eliminates the profit, the margins are too thin.
Checklist: Feasibility Model Review
- All revenue assumptions supported by comparable sales evidence
- Land cost reflects actual or contracted purchase price including stamp duty
- Construction estimate from a quantity surveyor or builder tender
- All consultant fees itemised and based on quotes or market rates
- Council and statutory fees confirmed with the relevant authority
- Utility connection costs confirmed with service providers
- Finance costs modelled on indicative or actual loan terms
- Sales and marketing budget realistic for the product and market
- Contingency of five to ten per cent included as a separate line
- Holding costs between milestones are accounted for
- GST treatment is correctly applied
- Sensitivity analysis completed across key variables
- Residual land value calculated to confirm site price is supportable
Common Mistakes
The most frequent feasibility errors include using suburb-wide averages rather than micro-market comparable evidence, omitting or underestimating holding costs during the approval phase, treating contingency as profit margin rather than genuine risk buffer, not confirming statutory fees and infrastructure contributions with council, modelling finance costs on the full loan for the full term rather than on a progressive drawdown basis, using a single-point estimate rather than testing a range of scenarios, and not updating the feasibility as the project progresses through each stage.
Frequently Asked Questions
How early should I prepare a feasibility?
Before you commit to purchasing a site. A preliminary feasibility should be your first step after identifying a potential opportunity.
Should I use a spreadsheet or specialist software?
Either can work. The important thing is that the model is transparent, easy to update, and allows scenario testing. Many developers start with a spreadsheet and move to specialist tools as their portfolio grows.
How accurate should a preliminary feasibility be?
A preliminary feasibility will have wider assumptions than a detailed model prepared after builder quotes and planning confirmation. Acknowledge the uncertainty and build in appropriate contingency at each stage.
What profit margin should I target?
This depends on your risk profile and the project complexity. Many developers target a minimum of fifteen to twenty per cent margin on total development cost for small to medium residential projects.
When should I update the feasibility?
At every major milestone: after site acquisition, after planning approval, after builder procurement, and during construction if material changes occur.
Do I need a quantity surveyor for a small project?
For projects with construction budgets above five hundred thousand dollars, a quantity surveyor’s estimate provides significantly more reliability than a rate-per-square-metre assumption.
Kaizen Projects maintains detailed feasibility models for every project and is happy to share our approach with fellow developers. Download our Feasibility Template or get in touch for a confidential discussion.
General information only, not financial, tax, or legal advice. Seek independent advice for your circumstances.