What is Property Development?
property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others.
If you are interested in becoming a property developer, you are entering an ever-evolving industry according to PWC’s Global Emerging Trends in Real Estate 2024 report. According to a European investment manager within this report, “Real estate has always evolved. It serves a need in society for people to occupy space, and of course those needs change. In some sectors, the requirements are shrinking and in others they’re growing. Anticipating those changes and staying ahead of them is really what good investors can do.”1
The good news is that the property development sector is wide open to new entrants to disrupt the industry and steal market share, especially those from the tech field.3
1. The property development landscape
South Africa’s position as one of the most developed countries in sub-Saharan Africa4 and a member of BRICS5 (the acronym for the association of five emerging national economies: Brazil, Russia, India, China and South Africa) brings some key factors to light when considering the current landscape of property development:
Positives – South Africa’s well-developed financial, legal, communications and transport sectors, and open trade policy with a relatively stable domestic market. These factors should provide an environment conducive to growth.6 There is also a strong drive towards the repurposing of inner-city office blocks to develop institutional rental housing stock, into residential units. These range from the most basic – such as residential development in the Maboneng Precinct, to The Onyx in Cape Town – which transformed Nedbank’s head office into a residential and hospitality development.7
Challenges – South Africa still has to overcome the triple challenges of poverty, unemployment and income inequality.8 In the property development market, economic downturns have resulted in a more moderate stance, as developers are more likely to invest in reinventing property, rather than building on new land.9
Real estate has always evolved. It serves a need in society for people to occupy space, and of course those needs change. In some sectors, the requirements are shrinking and in others they’re growing. Anticipating those changes and staying ahead of them is really what good investors can do.
However, Jason McCormick, Managing Director of McCormick Property Development and CEO of Exemplar REITail, believes that it is worthwhile to focus on student accommodation and low-to-middle income housing in the residential property development market, due to massive demand in both sectors.10 As far as retail development goes, McCormick dismisses market talk that South Africa’s retail landscape is saturated. Stating that it will take at least another five years before rural and peri-urban areas have adequate retail development. “It’s not a cookie-cutter model. You have to understand the market and build the right size on the right site.”11
2. What does a property developer do?
A property developer manages a host of activities and processes, from drawing up a business plan, to developing facilities. One definition of property development is “the continual reconfiguration of the built environment to meet society’s needs”.12 As a developer you invest your finances, skills, time, and talents to transform land in its current state to an improved state.
3. How to start property development
To become a successful property developer you need more than financial backing – although that helps. 13
It’s highly recommended that you begin by investing in a formal education in real estate. This will help give you an understanding of the obstacles and risks.14 It’s advantageous to learn about property, the markets, economics, finance, town planning, the construction processes and how to market your real estate projects.15
As far as retail development goes, McCormick dismisses market talk that South Africa’s retail landscape is saturated. Stating that it will take at least another five years before rural and peri-urban areas have adequate retail development.
Here are other critical factors needed to become a successful property developer:
Build a good team. It takes more than you and your expertise to develop property. Work on your network of professionals across all relevant industries so that you can seek advice from or hire the right people when needed16
Develop a deep understanding of the market,17 and your own vision of that market
Invest time and effort in a well-thought-out business plan, so that you not only have a means of securing financing, but also the blueprint for your business18
Research your potential property thoroughly, considering legal, financial, economic and technological challenges19
Find out what zoning and title conditions of the property you wish to invest in, as they will affect how you can develop it20