What is property development?
The business of buying land and buildings and then making improvements to them so that their selling price exceeds the price paid for them. Property development, also called real estate development, is the process of developing buildings or land into a higher use value.
It’s a multi-faceted business which can encompass any of the following:
- Buying land and building property on it;
- Renovating, extending or improving property;
- Converting property from one use type to another.
Property developers are the entrepreneurs who carry out real estate development. There is a simple premise behind what a developer does; put quite simply: By adding value, a developer can extract a profit from development. This is one of the main (but not only) aims in property development. The concept of developing property to its highest and best use value is fundamental to the property development process.
The advantage development offers in comparison to other avenues of preserving and generating wealth in property, such as property investment, is the potential for substantially higher returns. However, where profit and a return can be made, risk always follows. Property development is no exception.
Many people will tell you that property development is complex and risky. Indeed, without the right knowledge, skills or planning it can be and as a result, developers often seek to reduce risk in as many ways as possible.
While profit is often a keen incentive behind property development, there can also be a pertinent social incentive to provide the housing, shops, offices, warehouses, and educational establishments needed to create a robust local community.
Property developers tend to focus either on residential development or commercial development, although there can often be significant overlap between the two.
Another distinction in property development is between developers who develop property to sell for capital gain and those who develop to hold property for its long-term rental income. The choice of strategy depends on the goals of the individual developer and / or investor. Both are perfectly viable strategies but produce different outcomes.
Residential developers may integrate commercial properties into otherwise purely residential-led developments: a shop at the bottom of a block of flats for example. Likewise, commercial developers may integrate residential property into otherwise purely commercial developments. By doing so, developers can create mixed-use developments which better cater to the needs of the community, which fulfil various planning obligations, and diversify their risk or income stream within a development project.
Article written by
Priscillah Munangatire