Curtin Business School School of Economics and Finance
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Curtin Business School School of Economics and Finance A Critical Assessment of Pre-Construction Property Development Principles and Process in Queensland, Australia Ferdinand Theodorus Preller This thesis is presented for the degree of Master of Commerce (Property) of Curtin University of Technology July 2009 DECLARATION To the best of my knowledge and belief this thesis contains no material previously published by any other person except where due acknowledgement has been made. This thesis contains no material which has been accepted for the award of any other degree or diploma in any university. Signature: Date: 27 July 2009 ABSTRACT Research evidence suggests that property development is an integrated process revolving around numerous concepts that link distinct phases in the development cycle. This study acquaints the reader with key performance areas that make up the integrated development process. It conducts a literature discourse and empirical assessment of the pre-construction principles and process of commercial property development. The theoretical exploration of the study area establishes a sound secondary data base from which the comparative empirical research is conducted by way of questionnaires issued to and received from a sample of Queensland based property developers. Data obtained from the questionnaires is statistically analysed and explored. This study also seeks to explore the common principles and characteristics of the property development process as they occur prior to the commencement of construction activities, within the context of commercial property in broadly capitalist terms - i.e. commercial entities seeking profit. The approach taken is to match theory, from the literature on models of the development process, with practice. The study finds that Queensland based property developers do indeed apply sound pre-construction development principles and process within a structured framework. The findings also concluded that the following three key performance areas identified in the study make up the pre-construction development framework and are equally soundly applied by the property developers. • Location studies and site selection. • Market research and property markets. • Feasibility principles, design development and financial analysis. ACKNOWLEDGEMENTS I would like to take this opportunity to express my sincere appreciation and gratitude to: • Dr Greg Costello, my Supervisor, whose clear guidance, personal encouragement and sincere interest during this study was not only of invaluable assistance but distinguished him as an extraordinary academic and study leader in the field of property studies. • Joanne Boycott, Research Student Coordinator, Curtin Business School, for her sincere interest, friendly assistance and generous support during my study. I also acknowledge the assistance and support of and offer my appreciation to Constance Liebrands, Librarian at the Curtin Business School, Curtin University of Technology. • Robert Walker, Executive Director, and Keryn Osgerby, Business Development Manager, of the Queensland division of the Property Council of Australia, for their kind assistance during the compilation of the representative sample group of Queensland based property developers. • The eleven Queensland based property development companies and their representatives, who formed the sample group for and participated in the empirical research, all of whom so generously gave and shared their time, knowledge and support during this study. Without their participation, friendliness and provision of research data, this study would not have been possible. • My colleagues at work and friends for their personal encouragement, assistance and patience during this study. I especially acknowledge Kathie Milos for her exceptional assistance and dedicated technical assistance with the preparation of the final thesis. • Dr Liezel Korf for her able assistance and dedication in the statistical analysis of the questionnaire data. • Lanie van Kradenburg for her exceptional and dedicated efforts in assisting with the editing of the thesis. A special word of sincere thanks and appreciation to her for her continued encouragement and friendship during my academic career. It has indeed made a difference. 11 • My daughter, Claudi-Mari, for her support and personal encouragement during this study. I dedicate this study to her as a source of encouragement as she embarks on her life and career in Australia. • Marile, my wife. A special word of thanks and appreciation for her understanding, patience and encouragement during this study and over four decades of academic study and research. Without her by my side my life's work would not have been possible. • My Creator, for a blessed life. To Him all the praise, thanks and glory. FT PRELLER BRISBANE 27 July 2009 111 SCHEDULE OF TABLES Page TABLE 1.1: Strategic fit: Graaskamp model with study areas: process of real estate development decision making 9 TABLE 3.1: I ncome and expense forecast 107 TABLE 3.2: Determining present and future values 113 TABLE 3.3: An illustration of NPV and IRR 115 TABLE 4.1: Study sample group: Property Council of Australia: Queensland based sample group membership category analysis 128 TABLE 5.1: Respondents listed on the Australian Stock Exchange 138 TABLE 5.2: Respondents which are a private incorporated entity 138 TABLE 5.3: States and territories in which companies conduct property developments 139 TABLE 5.4: Respondents operating in other countries outside of Australia 139 TABLE 5.5: Position of respondent in company hierarchy 140 TABLE 5.6: Length of time involved in the property development Industry 140 TABLE 5.7: Listed/unlisted companies: length of time involved in the property development industry 140 TABLE 5.8: Various roles as applied in the work of a property developer 142 TABLE 5.9: Listed/unlisted companies: various roles as applied in the work of a property developer 143 TABLE 5.10: Consultants used by respondents 144 TABLE 5.11: Frequency with which pre-construction property development principles and key performance areas are applied 146 TABLE 5.12: Listed/unlisted companies: application of pre-construction property development principles and key performance areas 147 TABLE 5.13: Application and analyses of factors in identifying the preferred location 150 IV TABLE 5.14: Listed/unlisted companies: frequency with which respondents apply and analyse location identification factors 151 TABLE 5.15: Use of land evaluation principles 152 TABLE 5.16: Use of a holistic approach to site selection and location identification 152 TABLE 5.17: Application of site specific evaluation factors 153 TABLE 5.18: Listed/unlisted companies: application of site specific evaluation factors 154 TABLE 5.19: Order of preference of three evaluation factors 155 TABLE 5.20: Application of a structured framework approach to market research 157 TABLE 5.21: Extent to which respondents apply and analyse market and marketability factors 159 TABLE 5.22: Listed/unlisted companies: extent to which respondents apply and analyse market and marketability factors 160 TABLE 5.23: Characteristics of the property market: far less organised 161 TABLE 5.24: Extent to which specific sources of property information is utilised 163 TABLE 5.25: Listed/unlisted companies: extent to which specific sources of property information is utilised 164 TABLE 5.26: Extent to which financial feasibility framework factors are applied 167 TABLE 5.27: Listed/unlisted companies: extent to which financial Feasibility framework factors are applied 168 TABLE 5.28: Number of components used when completing a financial feasibility analysis for a property development 169 TABLE 5.29: Extent to which discounted cash flow analysis methods and other financial ratios are applied 171 TABLE 5.30: Listed/unlisted companies: extent to which discounted Cash flow analysis methods and other financial rations are applied 172 v SCHEDULE OF FIGURES Page FIGURE 1.1: The Graaskamp model 8 FIGURE 1.2: Framework of the study 13 FIGURE 2.1: Conceptual model of the real estate investment environment 18 FIGURE 2.2: The developer's many roles 19 FIGURE 2.3: The development process by Cloete 29 FIGURE 2.4: The eight-stage model of real estate development 31 FIGURE 2.5: Graaskamp's approach to feasibility analysis 32 FIGURE 2.6: The components of a successful development 35 FIGURE 2.7: The go-decision 37 FIGURE 2.8: Diagram of the development process 39 FIGURE 2.9: Feasibility study steps 40 FIGURE 2.10: Proposed framework: pre-construction property 42 development principles and process FIGURE 3.1: Different land use models 48 FIGURE 3.2: Central pattern of urban land use in American cities 50 FIGURE 3.3: Three levels of spatial analysis 51 FIGURE 3.4: Activities involved in refinement of the idea 53 vi SCHEDULE OF FIGURES Page FIGURE 3.5: Factors that influence the site evaluation 58 FIGURE 3.6: Location checklist factors 61 FIGURE 3.7: Performance evaluation approach for site selection 65 FIGURE 3.B: Conceptual model of the market analysis and marketability analysis process 70 FIGURE 3.9: Sales potential for a retail centre: analytical process 71 FIGURE 3.10: Interrelating the two essential dimensions of market studies 73 FIGURE 3.11: The institutional hierarchy of property markets 77 FIGURE 3.12: Developing a strategy 93 FIGURE 3.13: The cycle of evolving a project 94 FIGURE 3.14: Front-door financial feasibility analysis 98 FIGURE 3:15: Back-door approach to financial feasibility and land residual calculation