Development feasibility: how a site feasibility study and site assessment work

Every development that loses money looked good to someone at the start. The discipline that separates projects that work from those that do not is development feasibility: a structured test of whether a site can deliver a profit, done before the land is bought.

A site feasibility study has two halves. The first asks what can physically and legally be built. The second asks whether building it makes financial sense. This guide walks through both.

Part one: the site assessment property developers start with

A site assessment of a property establishes the facts about the land. Everything in the financial model depends on them.

Identity and extent

Erf number, township and registered size. See erf size lookup.
Boundaries, checked against the survey diagram. See check a property boundary.

Rights

Current zoning, with density, height, coverage and floor area. See zoning check and floor area ratio, coverage and height.
Building lines.
Parking requirements.
The planning framework for the area, which indicates whether more rights are realistic. See densification in Johannesburg.

Title

Restrictive conditions. See title conditions.
Servitudes and where they run.

Physical constraints

Floodlines. See floodline check.
Dolomite and soil. See dolomite risk.
Slope, access and existing structures.

Services

Water, sewer, stormwater and electricity capacity, and likely contributions.

Market context

Recent sales of comparable land and finished product nearby. See comparable sales.

The output of the site assessment is a yield: how many units, or how many square metres, can be built — under existing rights, and under the rights you might obtain. The method is in what can I build on my property.

Part two: the financial feasibility

With a yield in hand, the financial side is arithmetic. The skill is in the honesty of the inputs.

Revenue

Units × expected selling price, or lettable area × rent capitalised at a market yield. Use evidence from actual transactions, not asking prices, and discount for the time it takes to sell.

Costs

Land, including transfer costs. See transfer costs and duty.
Construction, including site works, services and parking.
Professional fees — planner, architect, engineers, quantity surveyor, land surveyor, project manager.
Municipal costs — application fees, plan fees, engineering services contributions. See rezoning cost.
Finance — interest during the planning and construction periods.
Marketing and sales — commission, show unit, advertising.
Legal — conveyancing, sectional title or township registration.
Holding — rates, security, insurance.
Tax — including VAT where the developer is a vendor.
Contingency.

Profit

Revenue less all costs. Developers judge it as a percentage of cost or of revenue, and compare it with the risk taken.

The residual land value

The most useful single calculation in a property feasibility study runs the model backwards.

Residual land value = revenue − all costs excluding land − required profit

The result is the most you can pay for the land and still make your target return. If the asking price is above it, the deal does not work at that price, however attractive the site.

This reframes negotiation. You are not arguing about what the land is "worth"; you are stating what the project can afford.

Testing the assumptions

A feasibility is only as good as its weakest assumption. Stress the ones that matter:

Sales prices down by a realistic margin.
Construction cost up.
Programme longer — a six-month delay in approvals.
Fewer units than the theoretical yield, because parking or building lines bit harder than expected.
Contributions higher than estimated.

If a modest adverse move in one of these wipes out the profit, the project is fragile. Two moving together is not unusual.

Stages of feasibility

Not every site deserves a full study. Work in stages, spending more only as the site survives.

Stage 1 — Desktop screen. An hour or less. Erf size, zoning, obvious constraints, a back-of-envelope yield and residual. Most sites are rejected here.

Stage 2 — Preliminary feasibility. A town planner's view on rights and policy, a sketch layout, cost rates per square metre, comparable sales.

Stage 3 — Detailed feasibility. Concept design, quantity surveyor's estimate, engineer's services report, market study, cash flow with finance.

The purpose of Stage 1 is to make Stage 2 and 3 money go only to sites that might work.

The mistakes that recur

Using theoretical yield. Maximum floor area on paper is rarely achieved on the ground.
Ignoring time. Planning approvals take as long as they take; interest accrues throughout.
Leaving out contributions. Often the largest municipal cost.
Pricing on asking prices. Use registered sales.
Assuming rights that have not been granted.
Missing a title condition or servitude that changes the layout.
No contingency.

What a property development report gives you

A property development report assembles the site-assessment facts so you can run Stage 1 quickly and consistently. On checkproperty.co.za, the Development potential report for a Johannesburg erf covers:

erf details, size and municipal valuation;
sales history and comparable sales, with suburb statistics;
site constraints: floodlines, dolomite and soil;
zoning, with density, height and parking zones;
building lines and the planning framework guideline;
title deed reference, servitudes and the survey diagram;
where the rules for the zone have been verified, permitted uses, coverage, and second-dwelling and subdivision assessments.

It is a starting point for the conversation with a town planner, not a replacement for one. Report contents are listed on the pricing page.

Frequently asked questions

Do I need a feasibility study for a small project? Yes. The smaller the project, the less margin there is to absorb a surprise.

Who prepares a detailed feasibility? Usually a development manager or quantity surveyor, with input from the planner, architect and engineers.

Is a feasibility study the same as a valuation? No. A valuation estimates what a property is worth. A feasibility tests whether a specific project on it is profitable.

The bottom line

Development feasibility is site facts first, numbers second, and stress tests third. Do a quick screen on every site, a proper study on the few that survive, and let the residual land value — not enthusiasm — set the price you offer.

Start a site assessment with a property search.

This is general information, not financial, investment or town-planning advice. Obtain professional advice before committing to a development.