What is a Feasibility?
AKA (Feaso)
Its quite easy to get into this long winded technical definition of what a feasibility study is in relation to construction finance, however the short answer is this;
Essentially its the Profit & Loss Sheet for a Development Project, Sales vs. Costs, its the one study that tells a Developer if their project will make money, and if so, how much?
Both Developers and Funders will take a close look at the numbers in a feaso when assessing how viable a project is to build and fund.
Some key metrics that are learned from a Feasibility include:
- Amount of Profit in Project in $ Terms
- Profit Margin against Costs as a %
- Loan to Value Ratio’s
- LVR Against Gross Realisation Value (GRV)
- LVR Against Total Development Costs (TDC)
- LVR Against on Completion Value
- Maximum Loan Amount
- Required Equity Contribution
- Return on Equity
In most cases Developers will have already completed a feasibility by the time they seek finance, however to help you better understand what information needs to be captured in a feasibility we have included the below template as a rough guide.
SALES
- Gross Sales (Less)
- Selling Costs
- GST on Sales
- Net Sales
COST
- Land Cost
- Acquisition Costs
- Land Holding Costs
- Construction + Contingency
- Professional Fees / Consultants
- Statutory / Council Contributions
- Other (Marketing / Project Management)
- GST Refund
- Loan Interest & Finance Costs
Total Development Costs
Profit / Profit Margin
