A property development feasibility is a forward-looking financial model of a project that does not exist yet, built to answer an acquisition question before you commit money. It tells you what a site is worth to you given what can actually be built on it, what delivery will cost, and what profit must be left at the end for the risk to be worth taking. It is not a valuation, a tax opinion, a lender's credit assessment, or a probability forecast.
The relationship developers work backwards from is residual land value, stated here in a deliberately narrow form:
RLV = GRV − non-land development costs − target profit
The deductions are the development costs that are not land. The land purchase price is not one of them. Subtracting it as well counts the land twice and produces a number that looks cautious but is simply wrong.
That identity is a simplified expression, not a universal exact solution, because transfer duty, land-related interest and margin-scheme GST all depend on the land price — the very quantity the formula solves for. A real model resolves that circularity by iteration.
Key Takeaways
- A feasibility answers three questions: does the project make a profit, what is the most you can pay for the land, and will anyone fund it.
- Land is the output, not an input. In
RLV = GRV − non-land development costs − target profit, the land price is what you are solving for. - The planning envelope comes first and the financial model second. The envelope sets gross floor area, which drives both revenue and the largest cost line. A yield error moves both sides at once, and no amount of modelling discipline can detect it from inside the model.
- Every margin must name its denominator. Margin on cost and margin on revenue differ, and they convert as
r = m / (1 + m). - A feasibility is not a valuation. Different purpose, different evidence, different date basis.
- Sensitivity analysis is scenario testing, not a probability forecast.
The model runs in two directions. If you own the site, or are under contract at a known price, you fix the land price and solve for the margin the project returns. If you are bidding on a site you do not own, you fix the target margin and solve for the land price. Owners and developers routinely talk past each other here, because a landowner typically only sees the second version, arriving as an offer in the letterbox, and reads it as a statement about the land's worth rather than about the scheme the buyer intends to build. Readers who want the underlying data layer can see the structure of DDDI's intelligence and feasibility services.
The Core Formula, and Why the Land Price Is Not in It
Residual land value runs the project backwards. Start with what the finished development sells for, subtract everything it costs to deliver other than the land, then subtract the profit the project must earn for the risk to be justified. What remains is the maximum the scheme can support as a land price, and land is the output rather than an input.
Gross realisation (GRV)
− construction (including contingency)
− professional fees
− statutory fees and contributions
− finance and holding costs
− selling and marketing
= total non-land development costs
────────────────────────────────────
GRV − non-land development costs − target profit
= residual land value (RLV)
The most common analytical error in a first-pass feasibility is deducting the land purchase price inside that chain. The residual then stops being a land value. Against the illustrative figures used later, a $600,000 land price deducted inside the chain gives a residual of $0, concealing a project that returns $400,000 on a $2,600,000 total development cost.
GST must be handled once, and the basis stated. State whether every figure is GST-exclusive or GST-inclusive, and never mix the two. New residential premises attract GST on sale. Where the margin scheme applies, tax is calculated on the margin rather than the full price: under the consideration method the margin is sale price minus original purchase price, and the GST is one eleventh of it. Availability is conditional, the parties must agree in writing before settlement, and some acquisitions are excluded entirely. Confirm with an accountant rather than assume.
Note what that does to the tidy subtraction. If GST is one eleventh of (sale price − land price), GST depends on the land price. So does transfer duty, and so does interest on the land component of the facility. In a real model all three and the land price are mutually dependent, and you solve by iteration rather than by one subtraction.
Margin has two legitimate denominators. Margin on cost, m, is profit divided by total development cost. Margin on revenue, r, is profit divided by gross realisation. Given a required margin on cost, the cost the project can carry is TDC = GRV / (1 + m); given a required margin on revenue, profit is GRV × r. Convert with r = m / (1 + m) and m = r / (1 − r). Margin on cost versus margin on revenue covers the algebra and the presentation traps.
Planning and Yield First, Financial Model Second
Establish the planning envelope and the permissible yield before you price anything. The envelope is an input to the feasibility, not a downstream check on it.
The reason is arithmetic. The planning controls determine gross floor area, which sets two things at once: revenue, because it governs how much saleable product there is, and construction cost, because construction is priced per square metre and is the largest single cost line. A yield error therefore moves revenue and cost in opposite directions at once. A model built on too generous a yield will show a healthy margin and be internally consistent. It will simply be computing the wrong project.
Practitioner sources agree on where the early errors occur. The most commonly named mistake is over-fitting a scheme to a site without checking that the dwelling mix matches the market depth of the suburb. The second is running a residual on a yield the controls will never approve, which produces a confident answer in the expensive direction. The workflow that avoids both: site facts; permissible yield and built form; a scheme designed to that envelope with the mix checked against local evidence; revenue; costs; finance and programme; then read and stress the outputs.
What to Confirm Before You Price Anything
Zoning comes first, because permissibility precedes everything else. In South Australia, SAPPA is the starting point for checking zoning and overlays in Adelaide, with each zone returning its own extract of the Planning and Design Code.
Turning controls into a floor area budget is next. The instruments give you ratios, height limits and minimum lot sizes; converting those into buildable gross floor area and then a dwelling count is the calculation that feeds the model. How floor space ratio, height and minimum lot size interact in NSW walks through that conversion and the logic transfers. For a small infill site, the dual occupancy site check for NSW sets out the eligibility questions to settle before the numbers.
Two cautions apply anywhere. The mapped statutory controls are usually not the whole envelope: setbacks, site coverage, landscape area, private open space and parking typically sit in a separate council instrument and can make a nominally compliant floor area unbuildable. And the framework differs between states — NSW and South Australia operate on quite different statutory architecture — so a feasibility cannot be transferred across a border without re-deriving the envelope.
Revenue: What the Project Will Actually Sell For
Gross realisation is the most influential number in the model and the one most often set too high. The evidence standard is comparable sales of similar completed product nearby, adjusted for size, finish, aspect and position. An agent's appraisal adds context about buyer depth but is not evidence of value, and where the evidence supports a range, model its lower end rather than the top. Selling costs and GST come off the gross figure to give net realisation, and for new residential premises the purchaser withholds the GST and pays it to the ATO at settlement.
Absorption is a modelling input, not a footnote. The rate at which completed product clears determines settlement timing, holding period and finance cost. It is the variable most often omitted and most easily observed: count the competing supply. A developer running an Adelaide infill project publicly noted counting roughly 31 townhouses in planning or building rules consent within one kilometre, against roughly six completions in twelve months. Whether those counts hold today, the exercise is the right one. A suburb with a large pipeline relative to recent completions will not settle at the pace the model assumes, and the constraint shows up as interest rather than as a lower sale price.
Cost: The Lines That Decide the Outcome
The failure in a development feasibility is almost never in the construction rate. It is in the long tail of small lines and in the contingency.
Construction is the largest line and the one people are most comfortable with. It is also where a plausible-sounding rate per square metre can be badly out, depending on finish level, site access, slope, and party wall and fire separation requirements. Published benchmarks diverge widely because they answer different questions: some are trade rates, some all-in including builder margin, some GST-inclusive and some not. This article quotes no rate, because one without its basis and date is not usable. Get your number from a quantity surveyor or a builder's priced quote.
The remainder of the stack, with the party who should own each input:
| Category | Typical inputs | Evidence owner |
|---|---|---|
| Acquisition costs | Transfer duty, legal fees, due diligence, title and survey | Solicitor, conveyancer |
| Construction | Building contract, site works, contingency | Quantity surveyor, builder |
| Professional fees | Architect, planner, engineers, surveyor, certifier, specialist reports | Design team lead |
| Statutory fees and contributions | Application fees, development contributions, utility headworks | Planner |
| Finance and holding | Interest, establishment and line fees, valuation and QS monitoring, rates, insurance, land tax | Broker or lender |
| Selling and marketing | Agent commission, marketing, legal and conveyancing on each sale | Agent |
| GST | Margin scheme or standard treatment, as applicable | Accountant |
Contingency is a function of design stage, not a fixed percentage. At early screening, with no design and no pricing, a substantial allowance is the honest position; as documentation develops and a contract is signed, the required allowance falls. Lenders expect the contingency line to remain unspent headroom. Public post-mortems of failed small projects follow a consistent pattern: council contributions, open space levies, tree removal and bonds, specialist reports, acoustic upgrades for the party wall standard, contamination assessment, finance establishment and monitoring fees, selling costs beyond the headline commission, owners corporation setup, and extra contingency. Individually ordinary; collectively capable of exceeding ten per cent of revenue, which on a mid-teens margin separates a viable scheme from a loss. The full development cost checklist covers each category with inclusions, exclusions and timing.
Margin: The Denominator Matters More Than the Number
On the illustrative example below, the same $400,000 profit is 15.38 per cent on cost and 13.33 per cent on revenue. Where profit is a larger share of the figure, the divergence grows. If your feasibility quotes a margin without saying what it is a margin on, that is the first question to ask of it.
Secondary commentary routinely states a universal lender requirement, commonly "banks require 20 per cent on cost". Treat that as market convention describing appetite rather than regulation, because it is not regulation. The published constraints differ by lender type. APRA's APS 112 sets prudential capital requirements for authorised deposit-taking institutions, with a risk-weight category for land acquisition, development and construction exposures measured against qualifying development costs. ASIC's RG 45 sets disclosure benchmarks for unlisted mortgage schemes, including a lending-principles benchmark on loan-to-valuation ratios, disclosed on an "if not, why not" basis rather than as a prohibition. Wholesale and private lenders are governed by neither instrument and apply their own credit policies.
Notably, neither instrument sets a minimum developer profit margin. A specific lender's current stated requirement, obtained from that lender for your project, is a fact you can model. An unattributed universal threshold is not.
Cash Flow and Peak Debt: The Number a Static Model Hides
Profit is a total. Survival is a timing question, and a feasibility reporting only profit has said nothing about whether you can fund the project to the end.
Two points on the curve decide whether it proceeds. Equity drain at the front — documentation, approvals, deposits and consultant fees fall due before any construction facility is drawn, so this is cash you must have, exposed before the project has any lender validation. Peak debt — the facility fully drawn with few or no settlements yet, where the limit is tested, where loan-to-cost and loan-to-value constraints bind, and where an overrun or delay does the greatest damage. Capitalised interest compounds the problem: construction interest is typically added to the loan balance rather than paid monthly, so each month is charged on a larger balance than the last.
An Adelaide infill developer documenting a three-townhouse project publicly described plotting cash flow against key milestones for exactly two purposes: the equity drain of pulling documentation and approvals together at the front, and the cash drain at peak debt. Both are timing outputs, and neither appears in a static profit calculation.
This is where a spreadsheet typically stops being adequate for a live project, though a well-built workbook remains a legitimate way to screen sites. The free property development feasibility template covers the workbook approach and its limits; the comparison of feasibility software for Australian developers covers tooling for staged projects and scenarios.
Worked Example: A Three-Dwelling Infill Project (Illustrative)
The following figures are an illustrative example, not a real project. Every amount is GST-exclusive. The land purchase price is excluded from the deduction chain, because it is what the calculation solves for.
The setting is a small South Australian infill project delivering three attached dwellings, on the assumption that the planning envelope has been established and the scheme designed to it.
| Item | Amount |
|---|---|
| Gross realisation (GRV) | $3,000,000 |
| — Construction (including contingency) | $1,500,000 |
| — Professional fees | $120,000 |
| — Statutory fees and contributions | $80,000 |
| — Finance and holding costs | $150,000 |
| — Selling and marketing | $150,000 |
| Total non-land development costs | $2,000,000 |
| Target profit | $400,000 |
| Residual land value (RLV) | $600,000 |
| Reconciliation check | Calculation | Result |
|---|---|---|
| Total development cost at a $600,000 land price | $2,000,000 + $600,000 | $2,600,000 |
| Profit | $3,000,000 − $2,600,000 | $400,000 |
| Margin on cost | $400,000 ÷ $2,600,000 | 15.38% |
| Margin on revenue | $400,000 ÷ $3,000,000 | 13.33% |
| Denominator conversion check | m = r / (1 − r) = 0.1333 ÷ 0.8667 | 0.1538 ✓ |
Every quantity reconciles. The RLV of $600,000 and the assumed land price of $600,000 coincide because that is the definition of the figure: $600,000 is the price at which the project returns exactly the $400,000 target profit and not a dollar more. It is not a recommendation to pay $600,000, and it is not evidence of what the land is worth. It is the ceiling the scheme supports on these assumptions, and the residual land value derivation explains why that ceiling is an acquisition limit rather than a fair-offer figure for a vendor. The product-specific mechanics at this scale — title structure, shared services, access, party walls, cost-to-revenue tradeoffs — are covered in small-site development feasibility.
Sensitivity: What Breaks the Deal
Sensitivity analysis asks how much of your assumptions can be wrong before the project stops working. It is a scenario test, not a probability forecast: no output below should be read as a likelihood. Each scenario below changes one variable, holds the others, and keeps the $400,000 target profit to solve the resulting RLV.
| Scenario | Profit at $600k land | Margin on cost | New RLV |
|---|---|---|---|
| Base case | $400,000 | 15.38% | $600,000 |
| Sale price −8% (GRV $2,760,000) | $160,000 | 6.15% | $360,000 |
| Sale price +8% (GRV $3,240,000) | $640,000 | 24.62% | $840,000 |
| Construction +10% (+$150,000) | $250,000 | 9.09% | $450,000 |
The asymmetry is the finding. An eight per cent move in sale price destroys 60 per cent of the profit; a ten per cent construction overrun removes 37.5 per cent of it. Neither is unusual, and the two are correlated in practice, because a soft market and a difficult build often arrive together.
Rate and programme behave similarly. On an average drawn balance of $1,400,000 over 18 months, a two percentage point rate rise adds approximately 1,400,000 × 0.02 × 1.5 = $42,000. A three-month extension, at roughly $4,000 per month holding plus $6,400 per month interest, adds approximately $31,000.
| Combined downside | Amount |
|---|---|
| GRV (sale price −8%) | $2,760,000 |
| Non-land development costs (construction +10%, plus delay) | $2,181,000 |
| Total development cost at a $600,000 land price | $2,781,000 |
| Profit | −$21,000 |
| Margin on cost | ≈ −0.75% |
| Break-even GRV | $2,781,000 |
The project crosses into loss. Break-even gross realisation is $2,781,000, about 7.3 per cent below the base case assumption, and that is the most operationally useful output of the exercise. It states plainly how much sale-price evidence you need before the deal is defensible: if comparable sales do not comfortably support $2,781,000, the scheme does not clear even a zero-profit outcome under combined stress. Two limits apply: the outputs follow mechanically from the stated inputs, and testing variables one at a time flatters a project because real downside correlates. Sensitivity analysis in development feasibility covers running and presenting these scenarios properly.
Feasibility Is Not a Valuation, and Not a Loan Approval
These are different instruments, and the confusion between them leads developers to expect a funding outcome the document cannot produce.
| Feasibility | Valuation | |
|---|---|---|
| Purpose | Decide whether to pursue, and at what price | Form a professional opinion of market value |
| Direction | Forward-looking model of a project that does not exist | Backward-looking analysis of market evidence |
| Date basis | Assumptions about the future | Value as at a specified date |
| Evidence | Comparables, cost estimates, market research | Verified market transactions, adjusted |
| Relied on by | You, and your co-investors | Your lender, as security |
One structural point explains a common argument at settlement. The Australian Property Institute sets out the approaches and methods valuers apply, and the term gross realisation value does not appear in the professional standard governing mortgage security valuations — those use market value on an as-if-complete basis. The two are not interchangeable: gross realisation value is quoted gross of selling costs and often of GST, while a valuation is not. That is why the same project can read as several different leverage percentages depending on the denominator.
There is a land-pricing consequence too. In a project feasibility the land figure should be the site's market value at its highest and best use, even if you already own it or carry debt against it. Historical cost, a nominal zero, and the balance still owing all answer a different question. Feasibility study versus bank valuation works through the resulting equity gap.
How This Works in South Australia
South Australia operates a single statewide statutory framework under the Planning, Development and Infrastructure Act 2016, administered through the Planning and Design Code and the PlanSA portal. The feature that matters for feasibility is that the assessment pathway determines the authority, the timeframe and the rigour of assessment. Deemed-to-satisfy development meets all criteria in the Code, is fast-tracked, cannot be refused approval, and must be determined within five business days. Performance assessed development is assessed on merit and may involve notification or referral; most infill projects above two dwellings fall into that pathway.
| Assessment pathway | Statutory business days |
|---|---|
| Deemed to satisfy | 5 |
| Performance assessed — no public notification, no referral | 20 |
| Performance assessed — no notification, referral required | 50 |
| Performance assessed — public notification required (15 business days notification plus 15 business days applicant response; Assessment Panel or SCAP as authority) | 70 |
| Restricted — public notification required (20 business days notification plus 15 business days applicant response) | 95 |
All pathways carry a five-business-day verification period at the start and two business days at the end; where an Assessment Panel is the authority, a further 20 business days is added.
Two programme effects make a naive reading of that table wrong. The clock pauses. Statutory time limits for performance assessed development can be suspended where the authority or a referral agency asks for further information. Elapsed calendar time therefore exceeds the business-day count, and it is elapsed time that drives holding and interest costs. Whether your scheme triggers notification or referral is consequently a first-order financial question, because it moves the clock from 20 business days to 50 or 70. A deemed consent mechanism exists: if the authority fails to decide in time, the applicant may serve a Deemed Planning Consent Notice, after which consent is deemed granted. That is a genuine programme tool, not a guarantee of an outcome, and the cost of delay is priced as in the programme scenario above.
Two DDDI-published datasets are sometimes cited here and must not be merged. Cyberate PM, part of the DDDI Group, has publicly described average council planning approval timeframes of 47 to 108 days from a stated sample of 400 applications between 2020 and 2025. Separately, the RESI Australia Housing Market White Paper 2026 Chapter 2 reports on residential land division applications across 18 Adelaide metropolitan councils between January 2022 and June 2025, a stated cohort of 20,000-plus applications; DDDI's own page notes proportional sampling and that the analytical sample size is not published. Different samples, different studies, different periods, and neither supports a derived per-council table. South Australian development approval timeframes covers the observed data, the paused clock and the conversion into holding cost in full.
For readers who want the process handled end to end, Cyberate PM runs a property development feasibility service covering the modelling and the evidence pack. Cyberate PM is an affiliated business of the DDDI Group, so this is a related-party referral rather than an independent recommendation.
Frequently Asked Questions (FAQ)
What is the difference between a property development feasibility and a valuation?
A feasibility is a forward-looking model of a project that does not exist yet, built on assumptions about future costs and sale prices. A valuation is a professional opinion of market value supported by comparable evidence as at a specified date, and it is what a lender relies on. A valuer may use a residual calculation inside the valuation, but a feasibility prepared by a developer or adviser is not a valuation.
What profit margin should a development target?
There is no universal figure, and any source stating one without naming a lender and a date is describing market convention rather than a rule. What matters more than the number is that you state the denominator: margin on cost and margin on revenue differ, and they convert as r = m / (1 + m). Where a specific lender's current requirement matters to your funding, obtain it from that lender for your project.
How long does a property development feasibility take?
It depends on how much of the evidence already exists. With comparable sales, a quantity surveyor's cost estimate and a settled planning envelope, a model can be built in days. If the envelope must still be derived from the planning controls, or construction cost estimated from scratch, the front end takes considerably longer. This is separate from the statutory approval clocks, which run on business days and can be paused.
Do I need a feasibility study before buying land?
For a development site, yes. Acquisition is the point at which the largest fixed cost is set and the least information is available, and the land price is the single largest lever on project margin. Conditional contracts with due diligence and approval periods are common precisely because the feasibility work continues after exchange.
What should a property development feasibility report contain?
An assumptions register with sources and dates. The envelope and yield derivation. Revenue evidence, being comparable sales with dates and adjustments. A complete cost stack with contingency appropriate to the design stage. The margin, with its denominator stated. A cash flow showing peak debt and peak equity. Sensitivity scenarios with a break-even calculation. And a stated limitations section. Red flags include a margin with no denominator, a construction rate with no basis or date, no contingency line, no cash flow, and figures that do not reconcile to the stated profit.
Conclusion
A property development feasibility is a discipline in sequencing before it is a discipline in arithmetic. Establish the envelope and the permissible yield, because that sets both sides of the equation and no model can detect a yield error from the inside. Build the cost stack completely, including contingency and the long tail of small lines post-mortems consistently identify. State your margin denominator. Run the cash flow, not just the profit. Then stress the assumptions separately and together, and read the break-even figure as the real test of whether your evidence supports the scheme.
Where transfer duty, land-related interest or margin scheme GST depend on the land price, the model must iterate rather than subtract. Cyberate PM, part of the DDDI Group, offers a property development feasibility service that applies this method to a specific site — a related-party service, disclosed as such rather than presented as an independent recommendation. Readers who want the data and analysis layer behind site-level modelling can start with DDDI's intelligence services.