Whether you’re a property developer or a property owner, it would help to know how to conduct a property development feasibility study. In doing this study, several Canadian laws will be involved, which are also useful to know.
What is a property development feasibility study?
A property development or real estate feasibility study is a multi-level process conducted at the preparation stage of a development project.
This study will determine:
- if the project complies with laws on real estate development
- if the project is financially feasible
- the time and effort needed to finish the project
- the project’s possible risks and how to deal with such risks
Importance
A property development feasibility study is crucial to the success of a project. Here are some reasons why this is so important:
Helps in decision-making:
A completed study will tell you – as a developer or as a property owner – whether to pursue the project or not, given all the considerations as shown in the results of the study.
Balances profits and expenses:
To help in decision-making, the study will provide a visual picture of how the expected profits can set off the huge labor and financial expenses to be incurred by the project. A good feasibility study will determine whether the expenses and the projected income “stack up” with the necessary time and labor.
Provides accurate needs:
The study will give the developer an idea of the capital needed to fund the project. This should help the developer avoid any future financial constraints such as cash flow problems due to inadequate funding.
Elimination of risks:
Real estate development involves huge amounts of money. It’s vital that any possible risks are eliminated, or that there are contingency plans whenever these risks arise.
How is a property development feasibility study conducted?
There are three levels when conducting a property development feasibility study. It is crucial that each level or stage is done consecutively and that no level or stage is skipped.
1. High-level feasibility
High-level feasibility is the preliminary stage to see whether the project site is suitable for property development. It includes a review of its main features and possible restrictions to the proposed development.
This will give the developer an overview of how the project can move forward given the site’s (or the building’s) basic qualities.
It is also here that the developer makes reasonable presumptions and explores all possible ideas in doing the project.
2. Static feasibility
At this stage, the details from the high-level feasibility are confirmed and polished through the help of other professionals and consultants.
These professionals and consultants may include lawyers, architects, engineers, urban or city planners, local officials, and even the locals within the site’s vicinity.
At this point, facts and research results are applied to the initial presumptions made from the high-level feasibility. This will factually support the scrapping of some ideas made during the high-level feasibility.
After this stage, the developer should have a clearer view if the site can sustain the planned development.
3. Cashflow feasibility
Details from both the previous stages are improved down to their smallest details. It is here that the financial and funding aspects of the project are being considered.
It finally answers the question, “How much capital is needed to complete this project, and does it make sense based on the expected income of the project?”
The reason that cashflow feasibility is the last part is that knowing how much is needed must be based on the details already affirmed in the first two stages.
In relation to knowing if the planned project’s time, expenses, and revenue stack up, market research can also be conducted, including marketing plans. These will support the assessment of the project’s future revenues based on the current market applicable to the area or industry.
Sensitivity analyses can also be done at this point to see if unpredictable events do happen.
Feasibility report
Watch this video to know more about doing a final feasibility report after conducting the study:
To know more about this process of doing a property development feasibility study, consult with a property development lawyer in your area. If the project is in Montréal, for example, you can consult with a Lexpert-Ranked best property development lawyer in Québec.
What Canadian laws are considered in a property development feasibility study?
When conducting your property development feasibility study, it helps to know the Canadian laws that apply – from the federal level down to the municipal level. This will help you check if the development project is legally sound.
Zoning bylaws
Zoning bylaws refer to the laws that control the use of a land, building, or its improvements in a specific area or community. Each city or municipality is divided into areas or zones, which are based on its urban or city planning.
In Canada, each municipality has its own zoning bylaws. As a developer, it is essential to refer to this municipal zoning at the high-level feasibility or static feasibility stage.
These municipal zoning bylaws state the following:
- Permitted use of each zone or area: whether it can be used only for residential or for commercial use, or for both
- Required standards of development projects: standards for the commercial or residential buildings to be constructed in that specific zone (e.g., lot size, building height, building density).
Compliance with Canadian zoning bylaws are important. Any construction or development project that does not follow these laws will not be issued the necessary provincial or municipal permits.
Land use bylaws
Other municipal bylaws may also apply, which will restrict the use of the land in specific areas. While each province is unique in its regulation of land use, each municipality in these provinces would also differ from each other.
For example, land use bylaws other than zoning bylaws in Ontario are the following:
- Holding bylaws
- Interim control bylaws
- Temporary use bylaws
- Inclusionary zoning
- Site plan control bylaws
In British Columbia, land use bylaws that are not zoning bylaws are:
- Farming zoning restrictions
- Runoff control and stormwater management
- Flood plain bylaws
- Off-street parking and loading space bylaws
- Sign bylaws
- Screening and landscape
Tax laws
Property taxes of each municipality will affect the conduct of cash flow feasibility. As such, tax laws must also be considered when doing a property development feasibility study.
Some of the property taxes in Canada that must be considered include:
- PST, HST, or GST
- provincial transfer tax
- residential taxes which are based on property value assessment and the provincial rate
Got more questions on how to do an effective property development feasibility study? Reach out to any of the best property development lawyers in Canada as ranked by Lexpert.