When you love property and already invest in residential homes, you may wonder why you’re not a property developer. There are challenges to real estate development, but all businesses have challenges. You need to know what they are and how to resolve them without going bankrupt in the process! Lately, the building industry has suffered an uptick in builder insolvencies everywhere, including in the UK.
Property development is rewarding when it goes to plan. You can see what you’ve achieved. The property you develop will outlast you, and it is satisfying knowing what you create adds to the supply of real estate to meet the ongoing demand.
Plus, if you’ve not yet been convinced being a property developer is appealing, consider this fact, often residential developments are on sites that have been abandoned. Their existence improves the area, revitalises it, and gives new life to newly established communities.
From a business viewpoint, property development provides employment and injects money into the local economy. What’s not to love about property development? There are many challenges to the job that is not easy to overcome.
If being a property developer was easy, anyone with a love of real estate and investing would be doing it. In the present market, there is an ever-increasing number of external risks that make property development more challenging and nearly impossible to make a profit. It takes a savvy property developer who can anticipate and meet the industry’s challenges.
4 Real Estate Development Challenges
There are four roadblocks or challenges that threaten the success of real estate projects, including:
- Lack of supply of materials
- Misinterpreting homebuyers sentiment
- Construction site risks
- Budget constraints
Shortage Of Materials
To maintain a healthy reputation as a discerning property developer, it’s crucial to use high-quality building materials. However, as recent supply chain woes confirm, getting product when you need it is not as easy as it once was before the pandemic. Plus, with hyperinflation, the costs of materials have risen dramatically. If materials aren’t readily available (or they’re too expensive), the construction process takes longer than usual or requires numerous changes.
Currently, the shortage of building materials includes timber, plaster, and steel. Even though product availability has improved over these categories in 2022, prices remain a concern, and increases are expected. Price inflation, the Russo-Ukrainian conflict, and rising energy prices justify the cost of building materials.
Regrettably, the industry hasn’t recovered from the devastating impact of the coronavirus pandemic, and delayed shipments translate into the fact that building materials are harder to come by. It’s recommended to place orders as soon as possible and lean on suppliers for support.
Retaining a good rapport with the supply chain has always been a good idea, yet now it’s critical. Above all, you must keep an engineer or retainer for your project so that you don’t have to wait for approval in the case of material substitution. Detailed records regarding the agreed-upon building materials are critical to maintaining good relationships between contractors and owners.
Changes In Consumer Mindsets
Consumer behavior around buying and renting property continues to change regarding requirements in design, facilities, overall lifestyle, etc.
Real estate developers should consider prospective customers’ needs and wants, involving experienced architects and meticulously planning every detail. To be more precise, it’s necessary to offer more than four walls for customers. Especially in property development, the psychology of the buying process is dominated by emotions, money, and timing.
Refusing to consider consumer mindsets can lead to a poor experience, to say the least, and, most importantly, lost opportunities.
Construction Site Risks
Construction of buildings is high risk due to heavy machinery, heights, and unsafe work areas. Accidents occur regularly. A fatality on-site can devastate business in terms of loss of reputation and productivity, plus low staff morale.
Property developers have insurance and know health and safety measures are never to be compromised. Even though big efforts have been made to enhance safety performance, the construction industry fails to keep pace with other sectors.
Some common injuries on job sites include but aren’t limited to:
- Airborne/material exposure
- Scaffold-related injuries
Safety is the responsibility of contractors, yet property developers are ultimately liable. If a construction worker is injured due to another person’s negligence, they may be able to claim damages against that individual and their employer. There are limited circumstances in which employees may sue. If you want detailed information on employer negligence, you should read articles created by personal injury lawyers.
Unexpected Budget Changes
Real estate developers must pay close attention to budget management. Time and cost overruns impact profit. Every property developer will have a story or two about how sometimes it is difficult, if not impossible, to control a construction project’s expenses due to inaccurate or unreasonable budget assumptions.
Regular analysis and forecasting of expenses is a must to remain within the margins of profit. On some development, failure to complete the project within the specified timeframe means you’re liable to pay liquidated damages in the amount stipulated in the contract.
There’s also the challenge of managing the unpredictability of rising materials and labor costs. As mentioned earlier, the price of building materials keeps increasing as interest rates rise. However, there is some good news in the building industry – the price of concrete, bricks, and cement is expected to drop, but it may take some time for the lower costs to filter through to the builders. Suppliers first need to improve their historically low inventories.
There is a shortage of workers, including qualified builders and contractors too. With a lack of supply, the costs go up, and contractors realise they can command much more for their skills and time.
Do you want the challenge of property development? If you’ve worked out, you have what it takes and can work around the current challenges, and the job is yours!
The ups and downs of real estate development will continue, but so will the opportunities.