Land feasibility study framework

Land feasibility study framework

You could do a quick feasibility study with some the following standard guidelines or measurements used in the industry:

LEVEL 5 Land office

This is a rather important step in the feasibility study. This step will determine if the subject land is legally available for your desired purpose whether to buy or to develop. You would be required to visit the Land Office to ascertain the following information:

 

LEVEL 6 JUPEM

JUPEM stands for Jabatan Ukur dan Pemetaan Malaysia (Department of Survey and Mapping Malaysia). This is where we go to obtain information pertaining to the size, dimension and the surroundings of the subject land. Although the advent of technology enables you to have a bird’s eye view of the land, or with Google Map Professional version, you can get as close as the actual size of the land, it is still important to get the official information from JUPEM to ensure it is legally and 100% accurate.

LEVEL 7 Market study

This is a study that is quite similar to understanding the messages behind the case studies in Chapter 3 How to Identify Good Land. As a land investor or property developer, it pays to know the market a little more before deciding on what to do with the land and what price to command if the decision is to launch into property development. Some of the essential information to obtain from the market study include:

a. Sales speed

We need to study the possible trend of sales for our development. This is where we measure how fast the development can be sold at. We will also need to determine where the buyers will come from. If we are able to pinpoint this correctly, we will then be able to forecast and manage our cashflow accurately.

b. User speed

This is where we measure the tenancy speed or how fast the development will be occupied. We will also try and spot where the users or tenants will be coming from. For example the developer of Dataran Sunway in Kota Damansara forecasted that banks will be one of the prominent users there. True enough, 17 out of the 23 banks have set up their branches there.

c. Market environment

You can generally get this from the news sources such as the newspaper, community papers, websites or forums. From here, you will know some background about the area such as its social standing, community needs, the racial composition and professional status of the area.

d. Visiting nearby developer’s sales office

From here you can get a feel of the property type, price points, sales speed and also the demographic of purchasers and investors.

e. Market “calling” price

This is sometimes referred to as “Asking” price. Information can be obtained from newspapers, magazines, Internet portals, mobile apps etc. This include sites like www.starproperty.my, www.homefinder.com.my, www.propwall.my, www.iproperty.com.my, www.propertyguru.com.my etc.

f. Property prices

It is always good to know the prices of properties in the surrounding neighbourhoods. How do we gather this? The fastest is to engage with an estate agent of the designated locality. Local estate agent experts will often be able to advise the acceptable prices and the pricing trend of the area. This shall include both the new launches and the subsale markets. Among the information needed are the price per square foot, size of the properties and their selling price.

e. Property user

We also need to identify where the potential users will be coming from. For instance, in Equine Park, due to the convenience of MEX (Maju Expressway) connecting it to Kuala Lumpur, we can be confident to conclude that users will be coming from Kuala Lumpur itself.

f. Market “transacted” price

This is the actual price paid for the subject properties by the buyer to the seller. You can get this information from Jabatan Penilaian dan Perkhidmatan Harta (Valuation and Property Services Department) at www.jpph.gov.my. The Department launches its latest NAPIC (National Property Information Centre) Report every quarter. There are also half yearly and annual reports. Every report can be purchased.

LEVEL 8 Frequent site visit

As you conduct the necessary study on that piece of land, you are encouraged to visit the site as frequent as you can. This is to give you the time and space to be more familiar with the subject land and its surroundings. The more you go, the more you will discover about the place, not just the physical but also the intangible aspects of it.

You may also want to consider visiting the subject land at different hours of the day and different days in the week to observe the traffic flow, the activities, the people and the intangible community behaviour which you can only see when you are there. For instance, you will never know that the subject land is barred from access due to the night markets. You can only discover these when you are there to see it physically.

 

LEVEL 9 Layout planning

At this level now, you can begin sketching the ideal layout for your development project. You may do this with a simple sketch first or if an architect is already part of your team, you may engage their professional service to draw a more accurate plan.

The only thing to bear in mind is that such drawings may subject to changes as time passes and as more factors you gather about the subject land. In the drawings, you may also want to indicate the measurements and the number of properties in order to give yourself and the authorities the right perspectives to work with. Some of the pertinent factors to watch out for are as the following:

• How do you position the properties?

In Malaysia, most of the property buyers prefer the north-south facing orientation as well as being shaded from the heat of the evening sun.

• Where do you position the TNB substation, the oxidation pond, the water tank etc?

Your aim is to achieve optimum usage of the subject land to maximise profit without hurting the harmonious living conditions of the people in the property. Such considerations also apply to commercial and industrial developments. Generally, residential lands need to allocate 10% of the land area for “kawasan lapang”. This will be used for playground, soccer field, basketball courts or just simple for landscaping.

• Another consideration is the low or medium cost factor. Is there a need to build low or medium cost houses as a social responsibility?

The benchmark in some places is that for every 10 acres of land, there is a need to build low cost homes or apartments. (see 5-3 Composition of Types of Homes based on Size of Development Area). For example, if your project has 100 units of link houses over 10 acres of land in Klang Valley. Therefore, according to the requirements, you are required to build:

• Depending on state, one low cost home may cost RM42,000 to build while a lowmedium one is about RM60,000 and a medium cost home is RM80,000.
 
• In Selangor for instance, there is no low cost requirement for land measuring less than two acres.
 
• The low and low-medium cost houses requirements are different from state to state. They also change every few years. So be mindful to do your own study when embarking to develop a piece of land.
 

Level 10 Financial analysis

The pinnacle of the feasibility study is at this level, the Financial Analysis. This is where we calculate and estimate the key financial figures to determine if the subject land is going to deliver profits or losses. It also helps us to see the viability of the project in terms of its cashflow position month after month.

Some of the key points we try to achieve at this level are:

a. Profits and Loss

The profitability of the project is determined by:

• Product Type

• Joint Venture Model

• Outright Purchase versus Joint Venture

• The Bottom Line of being in the red or black

• The Ratio of risks versus gain

b. Cashflow projections

Bottom Line – what is our cashflow position after servicing the loan each month?

Inflows – what is our projected sales revenue and when do they occur?

Outflows – at what stage do we incur the following costs?

• Piling

• Building and Construction

• Infrastructure

• Consultancy

• Statutory Applications and Compliances

• Sales and Marketing

• Show House Requirements and other relevant costs

Land Cost Outflows – at what stage of the project do we fulfil the payment for the following?

•Land Cost and Payment Terms to Land Owner

• Quit Rent/Assessment to be paid to the Local Governments

• Conversion Fee to be given to Land Office

• Legal fees to be paid to the lawyers

• Stamp duties to be paid to Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri Malaysia)

Financing Inflows – this is to determine when the project can expect some kind of funds coming in for the purpose of the project. This includes:

• Cash Injection – this can come in the form of Working Capital from shareholders or investors.

• Term Loan – a bank’s loan for the land

• Bridging Loan – a bank’s loan for construction

The viability of the development project rests on the numbers it can churn out from this stage because as they say, numbers don’t lie. Your position is better secured when you know where the project is heading financially.

 

 
 
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