Everything a Developer Needs to Know
PROCUREMENT
Procurement Risks
Everything a Developer Needs to Know
BY TONY COLLINS
There are many risks, from the developer’ s viewpoint, throughout the development process. The following series of articles takes a look at the key steps in this development process and the risk involved at each stage. The series also shares some practical tips for speeding up the decision-making process in property development and recommends a rational approach to feasibility analysis. This includes a total approach view of the feasibility process, using analysis by computer spreadsheet.
The case for Investment Analysis According to Greer and Farrel, in Investment Analysis for Real Estate Decisions, prior to 1970 real estate investors paid little attention to property investment analysis. Profitability was virtually assured by remarkable growth and expansion in the housing, office, industrial and commercial accommodation industry, which experienced few financial difficulties and an almost insignificant failure rate throughout
the period. Furthermore, the back-log in housing demand from the war years, combined with persistent inflationary increases in the value of real property, led to even the most poorly planned projects being reasonably successful. This was also a period represented by unbounded enthusiasm on the part of investors.
In the United States of America, this situation altered in the 1970’ s, when a great demand for borrowed funds on the part of the federal government, coupled with increasing demand for capital from rapidly expanding foreign industries, created fresh competition – driving interest rates to record levels. The failures of real estate related companies and financial institutions that followed were expensive and painful ones. Furthermore, during the same period, existing properties also came under pressure from escalating operating costs that were not cushioned by slow increases in rental rates. The consequent reductions in net operating income became the cause of many investors being unable to meet their mortgage
32 MARCH 2017 SA Real Estate Investor www. reimag. co. za