Buying a Development Site: Feasibility Basics

Unlike a standard property purchase, a development site's value isn't based on what exists on it today, but on what can realistically be built on it, and what that end product will be worth once completed and sold or leased. Getting this wrong is one of the more expensive mistakes a buyer can make, because feasibility errors compound through every subsequent stage of a project.

Understand what the site can actually accommodate

Zoning sets the outer limits of what's permissible, but zoning alone rarely tells the full story. Site-specific constraints — plot ratio, height limits, setbacks, easements, overland flow paths, bushfire or flood overlays, heritage listings, and infrastructure charges — can meaningfully reduce a site's yield below what the zoning headline suggests. A planning consultant's preliminary assessment before signing anything is far cheaper than discovering a constraint after settlement.

The core feasibility inputs

• Gross realisation — the total expected sale or lease value of the completed development
• Construction costs, typically the largest single cost line, including a contingency allowance
• Professional fees — architecture, engineering, planning, project management, legal
• Statutory costs — infrastructure charges, council fees, planning application costs
• Finance costs across the acquisition, construction and sell-down or lease-up period
• Selling or leasing costs and an allowance for holding costs during any vacancy or sell-down period

A residual land value calculation works backwards from these figures — realisation minus all costs and required developer margin equals what the buyer can afford to pay for the site and still meet their return target. Buyers who instead work forward from the asking price, hoping the numbers will work out, are far more exposed to feasibility risk.

Due diligence specific to development sites

• Contamination history, particularly for sites with prior industrial or service station use
• Geotechnical conditions affecting foundation costs
• Existing services capacity — water, sewer, power — and any augmentation costs required
• Any existing structures requiring demolition, and asbestos or heritage considerations in doing so
• Native title, cultural heritage and environmental approvals where relevant

A feasibility study is only as reliable as its cost and revenue assumptions. Stress-test the numbers against a construction cost overrun and a softer sales market before committing, not just the base case.

Timeframes and approval risk

Development approval timeframes are a genuine risk in themselves. Holding costs accrue while an approval is pursued, and market conditions can shift meaningfully between acquisition and eventual completion. Buyers should factor realistic approval timeframes, informed by recent comparable applications in the same council area, rather than best-case assumptions.

Feasibility is not a one-off exercise done before purchase and then filed away. Costs, market conditions and planning requirements can all move during a project, and a feasibility that isn't revisited through the process is of limited ongoing use.