Welcoming the New Year is such a thrilling moment! It opens the door to a plethora of new opportunities and adventures. However, as time progresses, change becomes inevitable. This is particularly true in the realm of property development, making it crucial to conduct thorough research and gather all the necessary facts!
Among the key changes to keep a close eye on is the state of the market. Market conditions exert significant influence over various aspects of property development, including project feasibility, financing options, and sales. Being well-informed about these conditions can be a game-changer, allowing you to make decisions that save both time and money!
In this week’s episode, Bob and Hilary discuss how replacement value is positively affecting property development. They delve into why it’s so crucial to understand the value of developing properties based on replacement value and how this strategy allows you to maximise your returns and make informed decisions when it comes to property development. So if you are looking to start the year off right and ready to take control of your future, you won’t want to miss this week’s episode!
Episode Highlights:
Bob’s tip of the week [01:46]
Free goal-setting session [02:56]
Developing for replacement value, what does that mean? [04:41]
The impact of market conditions on feasibilities and financing [12:13]
The role of financiers in adjusting margins [18:06]
The increase in housing demand and its effect on prices [22:31]
The importance of replacement value in property sales [25:43]
Generalizing the market conditions and looking ahead to 2024 [28:23]
Recap [29:16]
To learn more about our upcoming Joint Ventures Workshop, please click here: https://propertymastermind.activehosted.com/f/134
To join us on Wednesday 24th January for our 1 hour FREE Goal Setting Session, click here: https://propertymastermind.activehosted.com/f/138
Throughout the episode, we also touched on Hilary’s new book, 3 Wines In. To learn more click here: http://www.hilarysaxton.com
What replacement value means for developers
Replacement value is simply what it would cost to build a comparable property today, land, labour and materials included. When construction costs rise, the cost to replace existing housing rises with them, which quietly lifts the value of property that already exists. For developers, understanding this is a genuine edge.
Why rising build costs can work in your favour
It sounds counter-intuitive, but higher construction costs are not all bad news. As it becomes more expensive to build new stock, existing and newly completed properties become relatively more valuable, because buyers cannot simply build cheaper alternatives. A finished project can be worth more precisely because others cannot replicate it cheaply.
How to use replacement value in your research
Smart developers factor replacement value into their due diligence and feasibility. It helps you understand where end values are heading, why certain areas hold value, and how construction cost movements affect both your budget and your sale prices. It is one more lens for finding sites that stack up.
The bigger picture
Property development rewards those who understand the forces moving underneath the surface. Replacement value is one of those forces, and reading it correctly can be the difference between a marginal deal and a strong one.
Key takeaways
- Replacement value is what it would cost to build a comparable property today.
- Rising construction costs lift the value of existing stock, which can work in a developer’s favour.
- Factor replacement value into your due diligence and feasibility.
- Understanding market forces like this helps you spot deals that stack up.
Listen to the full episode
Listen on: Omny | Spotify | Apple Podcasts | YouTube
Want to learn how property development really works, from finding a profitable site through to settlement? Join our free masterclass, or come along to our 3-day Gold Coast workshop.