The recent global economic slowdown has made a lot of businesses think hard about their strategy for the coming year. However, in property development those who are able to think strategically and adapt to the changing market conditions, this can actually be an optimal time to lean in and grow your business.
Land has been too expensive for a while
One of the biggest challenges facing property developers in recent years has been the high cost of land. For the last few years, land prices have been skyrocketing, with many land owners expecting to get top money for their properties or land. This has made it extremely difficult for developers to find sites that are financially viable, as the cost of acquiring land has often been higher than the target potential returns from development.
In addition to the high cost of land, construction costs have also been on the rise, further eroding the potential profits for developers. This has led to many developers being forced to pull out of site negotiations or scale back their plans, as most sites simply couldn't work financially.
Revisit lost opportunities
However, as the economy slows down and land prices begin to adjust, developers are starting to see opportunities that were previously unavailable. Many land owners are now more willing to negotiate on price, as they are no longer expecting to have a lot of potential buyers for their properties or land. This can actually be an opportunity to revisit sites that were previously not viable to re-initiate a negotiation with an adjustment to today's market conditions.
While many property developers may be feeling scared and uncertain in these market conditions, the smart ones are moving forward and taking advantage of the opportunities that are available. They are looking for ways to grow their land bank and acquire sites that were previously unworkable.
Know how to calculate how much a site is worth
One key strategy that developers can use is to calculate a residual land value, which is the potential value of a site after all costs have been taken into account. By focusing on residual land value, developers can avoid overpaying for a site and ensure that they are getting the best possible deal.
Residual land values are built into Aprao and allow you to clearly see how much you should pay for a site. Residual land values in Aprao also adjust and update as you tweak your financials to ensure you never overpay for a site again.
Know your market
Additionally, developers can focus on niche markets or projects that are less affected by the downturn. For example, in some markets luxury homes are more resilient to slower market conditions and in others affordable housing or student accommodation may be less affected by market conditions.
In conclusion, a slower market can be an optimal time to grow a development company if developers can adapt to the changing market conditions and take advantage of the opportunities that are available. By focusing on residual land value, targeting areas that are less affected by the downturn, focusing on niche markets or projects, developers can grow their land bank and acquire sites that were previously unworkable. With a long-term vision and a strategic approach, property developers can weather the storm and come out stronger on the other side.
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