When you’re a property professional or an investor, understanding the property market and the law where you want to develop or purchase a property will help you avoid costly mistakes.
Developers, agents and investors alike should research when determining if a property is viable. You should never simply trust information provided to you by those who are trying to sell you the product or the location to develop in. You need to satisfy yourself that all the information that you are provided is correct.
Learn how to prepare yourself for investment or development using our Top 8 Research and Due Diligence tips for investors and developers.
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1. Check out Competing Development Projects
What should I learn? Aside from the development / project that you are considering or developing, who else is active in the market and what are they offering. How will this impact the value of the development properties? Is it a direct competitor or is the target market different?
Why is this important? Because when you come to selling your property these other projects will also be on the radar of potential investors.
Where should I start? The best place to start for this sort of research are property portals like rightmove.com or zoopla.com – also check which portals there are in the country you are looking at.
2. Find out if there is an existing Resale Market and what it looks like?
What should I learn? Are there homes up for sale a second time around in the area. Are they generally going for prices similar to what you’re planning to sell / buy for?
Why is this important? Because you need to understand whether prices have changed from when properties were built and what competition will exist from the market that isn’t new build.
Where should I start? Check out property portals and register with local agents to collect this information.
3. Find out where the demand comes from?
What should I learn? Is there a local market for the property? What is the purchase motivation of people buying in the area? Are people buying homes to let out, live in or as second homes?
Why is this important? Because you need to know that the demand is sustainable and will be available from the same or similar sources when you decide to sell your property.
Where should I start? Talk to estate agents in the area and also see what sort of properties are on the market and how they are promoted.
4. What is the Price History for the area or development?
What should I learn? How much did properties in each ‘band’ sell for this year (actual not listing prices), last year, 5 years ago? Have price jumps been accompanied by infrastructural enhancements to the area / project (or completion in case of off plan)?
Why is this important? Because you need to understand how the growth in the area has been achieved to understand if its likely that property in this location will appreciated and what drives the increasing property values. You can also then take into account new infrastructural improvements (such as transport connections) which are planned and may impact property values.
Where should I start? Most countries have a registry where you can find out sold prices and property trends. You can also check tools like the IMF Global House Prices Index for more general regional or national data.
5. Is there a viable Rental Market?
What should I learn? Are the holiday makers or locals who will want to rent a property for holidays or permanent living? How much are they likely to pay? For holiday lets, will demand be seasonal and what are touristic projections?
Why is this important? Regardless of whether you want to rent the property or not, the ability to do so increases your resale potential, so this should always be a consideration. This can also be a way to secure income from your property to cover mortgage payments.
Where should I start? Check local rental portals for long term rent as well as holiday let portals like Air BnB. You can also usually get historic touristic statistics from local tourist authorities as well as their development plans for the next 5 – 10 years.
6. What are the Ownership Laws applicable to you?
What should I learn? Are there restrictions on ownership by nationality, the number of properties, the zoning, the value? Can you own a property in this location? When you sell, can you repatriate your capital?
Why is this important? Checking that you can legally own a property where you will invest is wholly your responsibility. You may face restrictions of which you are not aware, you may have obligations to submit statements to the authorities and so on.
Where should I start? Speak to local agents and research online. Before you finally buy a property or start a development, we recommend that you retain a local lawyer to make sure you have all your legal and regulatory bases covered.
7. What Ownership Costs and taxes apply?
What should I learn? How much are the purchase costs, things like stamp duty, registration fees and notary fees. What about mortgage fees and costs? Are there any annual taxes payable? What will maintenance cost each year? Are there any municipality fees or taxes? Are there shared area maintenance fees? When you sell are there taxes on the gain or the whole amount? What are estate agents fees for local and international representation?
Why is this important? Understanding the ownership costs can help you avoid any nasty surprises. It will allow you to understand if rental income will cover your ownership costs and how much you have to put aside when you are buying. For developers it will enable them to understand the investment appeal for potential purchasers.
Where should I start? There are plenty of online resources and you can also always drop us a line and we will help you run through your purchase model.
8. Find out about the developer?
What should I learn? What has the developer built in the past? What warranties do they offer? Do they have sound financial backing? Do they have a transparent structure?
Why is this important? You need to make sure you are protected as possible when investing off plan. A good developer should put protections in place to address any shortcomings of their business (i.e. if they are a new developer, they can ensure funds are put in escrow and released according to construction stage as security).
Where should I start? Check out their past projects (if applicable) and check the register of businesses in the country to see how long they have been established. Also a simple google of the project, the company and its key individuals can shed light on any potential risks you might face.
This list is my no means exhaustive, as economic and political research also have a bearing on the viability of property projects amongst many other factors. Kenetic can help provide bespoke research to form the basis of your property development project. Before accepting any project to represent and work with, we put it through extensive due diligence procedures.
For investors, we also have a wide range of Tips and Hacks. Check out our blog for more property investment secrets revealed.