Property development feasibility analysis is typically regarded as the cornerstone of successful development projects across Australia. With construction costs potentially rising 6.5% annually according to The Access Group’s 2025 Construction Outlook and lending requirements generally tightening, a comprehensive feasibility study isn’t just recommended—it’s often essential for securing finance and ensuring project viability.
This guide covers what Australian property developers across all states and territories may need to know about conducting thorough feasibility analysis, from initial site assessment through financial modelling and risk evaluation.
What Is Property Development Feasibility?
Property development feasibility is typically understood as the systematic analysis of whether a proposed development project will be financially viable and commercially successful. It generally examines three critical questions:
- Is it physically possible? Site constraints, zoning, and engineering considerations
- Is it legally permissible? Planning regulations, building codes, and compliance requirements
- Is it financially profitable? Development costs versus expected returns
A property development feasibility study usually combines market research, site analysis, cost estimation, and financial modelling to help determine if a project should proceed. In Australia’s complex regulatory environment, feasibility studies may also need to navigate state-specific requirements, GST margin scheme implications through providers like HLB Mann Judd, and evolving sustainability standards like BASIX in NSW.
Why Feasibility Studies Are Often Critical in Australian Development
The Australian property development landscape presents unique challenges that typically make thorough feasibility analysis essential:
Regulatory Complexity
Each state and territory operates different planning systems with varying approval processes. NSW’s recent Low and Midrise Housing Policy changes may allow six-storey apartments within 400m of town centres, potentially altering feasibility calculations for thousands of sites. Victorian planning reforms typically focus on housing diversity, while Queensland generally balances growth with environmental protection. Similar planning evolution occurs across Western Australia, South Australia, Tasmania, and the Northern Territory, each with distinct regulatory frameworks.
Financial Pressures
APRA’s heightened scrutiny of commercial real estate lending suggests banks now commonly require comprehensive feasibility studies before approving development finance. Most lenders require a specified percentage of pre-sales for apartment projects and detailed cost verification from quantity surveyors.
Market Volatility
Australia’s property markets typically experience significant regional variations. Melbourne apartment prices have generally remained flat while Brisbane experiences what appears to be strong growth driven by interstate migration and infrastructure investment. Feasibility studies may need to account for these local market dynamics across all capital cities and regional centres.
Cost Escalation
Material and labour costs continue rising across Australia, with some regions potentially experiencing annual increases exceeding 10%. Feasibility studies typically include realistic contingency allowances and cost escalation factors.
Core Components of a Development Feasibility Study
1. Site Analysis and Due Diligence
Physical Assessment
- Soil conditions and potential geotechnical requirements
- Slope, drainage, and environmental constraints
- Access and service availability considerations
- Heritage and archaeological considerations
Legal Due Diligence
- Title search and ownership verification
- Easements, covenants, and potential encumbrances
- Planning zones and overlay controls
- Development contribution requirements that may apply
Planning Assessment
- Current zoning and permitted uses
- Height, setback, and density controls that typically apply
- Car parking and landscaping requirements
- Likely approval timeframes and associated costs
2. Market Research and Demand Analysis
Supply Analysis
- Competing developments in the area
- Pipeline of approved but unbuilt projects
- Historical absorption rates where available
- Market saturation indicators
Demand Assessment
- Population and employment growth trends
- Demographics and household formation patterns
- Infrastructure and amenity improvements planned
- Transport connectivity changes anticipated
Pricing Research
- Comparable recent sales data
- Price per square metre trends
- Potential premiums for views, orientation, or features
- Rental yields for investment products
3. Development Program and Design
Yield Optimisation
- Site coverage and plot ratio maximisation opportunities
- Unit mix optimisation based on apparent demand
- Parking, storage, and amenity requirements
- Staging opportunities for larger sites
Design Efficiency
- Circulation space minimisation potential
- Cost-effective structural systems
- Services and plant room optimisation
- Compliance with accessibility requirements
4. Cost Estimation
Land Acquisition Costs
- Purchase price or land value assessment
- Stamp duty (which varies significantly by state: approximately 5.5% in NSW, 5.5% in VIC, 3.75% in QLD, 5.15% in WA, 4.95% in SA, 4% in TAS, while NT and ACT have their own structures)
- Legal fees and due diligence costs
- Finance costs during holding period
Development Costs
- Site preparation and potential demolition
- Construction costs (structure, fitout, services)
- Professional fees (architect, engineer, consultant)
- Council fees and development contributions
Financing Costs
- Interest on construction loans (typically ranging 6-8% annually)
- Bank fees and establishment costs
- Mortgage insurance if required
- Working capital requirements
Marketing and Sales Costs
- Sales agent commissions (typically ranging 2.5-3.5%)
- Marketing and advertising expenses
- Display suite and sales office costs
- Legal fees for sales contracts
5. Financial Analysis and Modelling
Revenue Projections
- Gross sales revenue by product type
- Sales timing and settlement assumptions
- Rental income during potential holding periods
- GST considerations and margin scheme benefits
Profitability Analysis
- Gross profit margin calculation
- Return on investment (ROI) assessment
- Internal rate of return (IRR) modelling
- Profit margin as percentage of development cost
Cash Flow Modelling
- Monthly cash flow projections
- Peak funding requirement estimates
- Interest cost calculations
- Working capital needs assessment
Sensitivity Analysis
- Impact of cost variations (+/- 5%, 10%, 15%)
- Sales price sensitivity testing
- Timing delay scenarios
- Interest rate change impacts
Australian Market Considerations
GST and Tax Implications
The GST margin scheme could significantly impact development feasibility. Under this scheme, GST is calculated on the margin — the difference between the sale price and the property’s original purchase price (instead of on the full sale price). This often provides substantial savings, particularly for established land purchases. For example, on a $3 million development where the land was purchased for $800,000, GST under the margin scheme would be $200,000 instead of $272,727 — delivering savings of about $73,000.
Key GST considerations may include:
- Margin scheme eligibility for land purchases
- New property GST obligations
- Input tax credit claims
- Withholding obligations for foreign purchasers
State and Territory-Specific Requirements
New South Wales
- BASIX sustainability requirements may add an average $7,152 to construction costs
- Infrastructure contributions that vary by council (potentially up to $40,000 per unit in some areas)
- Planning reforms that may allow increased density near transport hubs
Victoria
- Development contributions through Development Contributions Plan (DCP)
- ResCode requirements for residential design
- Sustainable Design Assessment requirements that may apply
Queensland
- Infrastructure charges typically calculated per dwelling or per square metre
- South East Queensland Water Grid charges
- Koala habitat protection requirements in certain areas
Western Australia
- Development contribution areas (DCA) charges that may apply
- Water Corporation headworks contributions
- Bushfire risk management requirements in designated areas
South Australia
- Development Plan consent processes and associated fees
- Infrastructure schemes that may apply to certain developments
- Native vegetation clearance considerations
Tasmania
- Resource Management and Planning System requirements
- Potential Tasmanian Planning Scheme obligations
- Heritage and environmental considerations particularly relevant to the island state
Northern Territory and Australian Capital Territory
- Territory-specific planning requirements and contribution schemes
- Unique climatic considerations for construction and design
- Specialised infrastructure requirements
Foreign Investment Considerations
Recent changes to foreign investment rules have temporarily banned foreign purchases of established dwellings until March 2027, potentially redirecting capital toward new developments. This could create opportunities but may also require careful structuring for projects targeting foreign buyers.
FIRB approval requirements typically include:
- Developments over $15 million generally require approval
- Annual compliance reporting obligations
- Potential for divestment orders if conditions are breached
Financial Modelling Fundamentals
Residual Land Value Method
The residual method typically works backward from estimated end value to determine maximum supportable land cost:
Calculation Process:
- Estimate gross development value (total sales revenue)
- Deduct all development costs except land
- Deduct required developer profit
- Remainder represents maximum land value
Example Calculation:
- Gross Development Value: $4,500,000
- Construction Costs: $2,800,000
- Professional Fees: $350,000
- Finance Costs: $280,000
- Marketing/Legal: $180,000
- Developer Profit (15%): $675,000
- Residual Land Value: $215,000
Development Margin Analysis
Australian developers typically target margins of 15-25% of total development cost, depending on risk profile:
- Lower Risk (established areas, pre-sold): Often 15-18%
- Medium Risk (growth areas, some pre-sales): Typically 18-22%
- Higher Risk (emerging areas, speculative): May range 22-30%
Cash Flow Considerations
Development cash flows typically follow this pattern:
- Months 1-6: Land acquisition, approvals, design phase
- Months 7-18: Construction phase (usually negative cash flow)
- Months 15-24: Sales and settlements (positive cash flow expected)
Peak funding usually occurs 12-15 months into the project, requiring careful working capital management.
Site Analysis and Due Diligence Best Practices
Physical Site Assessment
Geotechnical Investigation Soil conditions may significantly impact foundation costs. Clay soils could require special footings potentially adding $15,000-30,000 to construction costs. Rock excavation might increase earthworks costs by 300-500%.
Environmental Considerations
- Contamination assessment (particularly important for former industrial sites)
- Flora and fauna surveys for bushland sites
- Flood risk and stormwater management requirements
- Noise impact from roads, airports, or industrial areas
Services Assessment
- Electricity supply capacity and potential upgrade requirements
- Sewer and water connection availability
- Telecommunications infrastructure adequacy
- Gas supply for developments requiring it
Planning Due Diligence
Zoning Analysis
- Current zoning permissions and restrictions
- Overlay controls (heritage, environmental, design)
- Potential for rezoning or planning scheme amendments
- Council policy directions and strategic plans
Development Standards
- Building height limits and setback requirements
- Site coverage and permeability rules that may apply
- Car parking requirements (typically 1-2 spaces per dwelling)
- Private and communal open space requirements
Market Research Methodology
Comparable Sales Analysis
- Recent sales within 1-2km of similar properties
- Price per square metre for different property types
- Sales rate and time on market analysis
- Price trends over past 12-24 months where available
Supply Pipeline Assessment
- Developments currently under construction
- Projects with planning approval but not yet commenced
- Land parcels likely to be developed
- Expected timing of competing supply
Demand Drivers
- Employment growth and major employers
- Infrastructure improvements (transport, schools, hospitals)
- Government policies potentially affecting housing demand
- Demographic trends and migration patterns
Risk Assessment and Mitigation
Development Risk Categories
Market Risks
- Property price volatility potential
- Demand changes during development period
- Competition from other developments
- Economic downturn impact possibilities
Construction Risks
- Cost escalation beyond budget
- Construction delays and weather impacts
- Contractor financial difficulties
- Defects and warranty issues
Planning and Approval Risks
- Planning application rejection or delays
- Unexpected consultation requirements
- Compliance cost increases
- Third-party appeals and challenges
Financial Risks
- Interest rate increases
- Difficulty securing development finance
- Pre-sales not achieving target levels
- Foreign exchange impacts for international buyers
Risk Mitigation Strategies
Contractual Protections
- Fixed-price construction contracts where possible
- Sunset clauses in pre-sale contracts
- Professional indemnity insurance requirements
- Performance bonds from contractors
Financial Buffers
- Contingency allowances (typically 5-10% of construction cost)
- Interest rate hedging for longer projects
- Staged development to limit exposure
- Conservative sales pricing assumptions
Due Diligence Thoroughness
- Comprehensive site investigations
- Multiple professional opinions on complex issues
- Market research from independent sources
- Legal reviews of all agreements and approvals
Common Feasibility Study Mistakes
Over-Optimistic Assumptions
Revenue Projections New developers may assume premium pricing without market evidence. It’s generally advisable to use conservative, evidence-based pricing from recent comparable sales.
Cost Underestimation
Construction cost estimates should ideally include detailed quantity surveyor assessments. Allowances for “unknowns” like rock excavation or contamination are typically essential.
Timing Assumptions Planning approvals often take 6-12 months longer than initially expected. Sales absorption could be slower in challenging markets.
Inadequate Contingencies
Developers typically include 5-10% contingency on construction costs for variations, and a project contingency for all other project costs:
- Planning approval delays (holding costs)
- Market downturns (extended sales period)
- Professional fees beyond base estimates
Ignoring Market Cycles
Property markets typically move in cycles. Feasibility studies should ideally consider where the local market sits in its cycle and potential changes during the development period.
Technology and Software Solutions
Spreadsheet vs Software Platforms
Excel/Spreadsheet Advantages:
- Complete customisation and control
- Familiar to most developers
- No ongoing software costs
- Easy to share and modify
Spreadsheet Limitations:
- Potentially error-prone with complex formulas
- Version control difficulties
- Limited scenario modelling capability
- Time-intensive setup and maintenance
Professional Software Benefits:
- Pre-built Australian templates and assumptions
- Automated calculations and error checking
- Scenario modelling and sensitivity analysis
- Integration with accounting and project management systems
- Compliance with lender requirements
When to Consider Upgrading from Spreadsheets
Consider professional feasibility software when:
- Managing multiple projects simultaneously
- Requiring complex scenario modelling
- Needing to share analysis with investors or lenders
- Seeking to reduce analysis time and improve accuracy
- Working with larger, more complex developments
Presenting Feasibility Analysis
Executive Summary Structure
Project Overview (1 page)
- Site location and key features
- Proposed development concept
- Target market and positioning
- Key financial metrics
Market Summary (1-2 pages)
- Local market conditions and trends
- Competition analysis
- Target market demand evidence
- Pricing recommendations
Financial Summary (1 page)
- Total development cost breakdown
- Revenue projections and timing
- Key profitability metrics
- Sensitivity analysis results
Detailed Analysis Sections
Site and Planning Analysis
- Site plans and key features
- Planning approval pathway and potential risks
- Development standards compliance
- Infrastructure requirements
Market Research Findings
- Comparable sales evidence
- Supply and demand analysis
- Absorption rate projections
- Pricing recommendations with supporting evidence
Cost Analysis
- Construction cost estimate (ideally from quantity surveyor)
- Professional fees and approval costs
- Finance and holding costs
- Marketing and sales costs
Financial Projections
- Cash flow analysis by month
- Profitability analysis and margins
- Return on investment calculations
- Sensitivity testing results
Lender Requirements
Banks typically require feasibility studies to include:
- Independent market research and comparable sales
- Quantity surveyor construction cost estimates
- Professional indemnity insurance from consultants
- Sensitivity analysis showing impact of adverse scenarios
- Evidence of developer experience and track record
Moving Forward: Implementation and Next Steps
Post-Feasibility Decision Making
Positive Feasibility Results
- Consider proceeding to detailed design development
- Commence planning application preparation
- Secure site control (option or purchase)
- Begin pre-sales and marketing preparation
Marginal Feasibility Results
- Investigate design modifications to potentially improve yields
- Explore alternative development concepts
- Consider partnerships to reduce risk exposure
- Reassess market timing and holding strategies
Negative Feasibility Results
- Document findings for future reference
- Consider alternative development approaches
- Investigate rezoning or planning amendment potential
- Explore partnership or joint venture opportunities
Building Development Expertise
Successful property development typically requires ongoing learning and market awareness. Key resources for Australian developers may include:
- Industry Associations: Urban Development Institute of Australia (UDIA) and Property Council of Australia
- Market Research: CoreLogic, SQM Research, and local estate agent reports
- Education: University programs, professional development courses, and industry conferences
- Networking: Local property development forums and professional networks
Professional Support Network
Consider assembling a team of qualified professionals:
- Planning Consultant: Navigate approval processes
- Quantity Surveyor: Accurate cost estimation
- Architect: Design optimisation and compliance
- Engineers: Structural, civil, and services design
- Accountant: Tax planning and financial structuring
- Lawyer: Contracts, approvals, and risk management
Conclusion
Property development feasibility analysis in Australia typically requires systematic evaluation of market conditions, regulatory requirements, and financial projections. Success often depends on thorough due diligence, realistic assumptions, and comprehensive risk assessment.
The complexity of Australian property markets across all states and territories, combined with evolving regulations and financing requirements, generally makes professional feasibility analysis essential for any serious development project. While this guide provides a comprehensive framework, each project presents unique challenges that may require careful analysis and professional expertise.
Whether you’re conducting your first feasibility study or your fiftieth, remember that thorough analysis upfront could prevent costly mistakes during development and construction. Take the time to understand your market, verify your assumptions, and plan for potential contingencies.
Ready to streamline your property development feasibility analysis? Explore how custom-built property development feasibility software can automate calculations, reduce errors, reduce funding complexity and save time on your next project.