A site may look straightforward.
The numbers may initially work.
The planning pathway may appear manageable.
Then the project progresses and a constraint emerges that changes the economics.
For Auckland property development, infrastructure and network capacity can be one of those risks.
What is development risk?
Development risk is the possibility that assumptions made during the early stages of a property project prove to be incorrect or change before the project reaches construction.
This can include:
- Planning restrictions
- Infrastructure capacity
- Water and wastewater
- Transport requirements
- Geotechnical conditions
- Flooding
- Contamination
- Development contributions
- Consenting
- Construction costs
- Funding
- Market conditions
- Programme
The earlier these risks are identified, the more options a developer has.
Why infrastructure capacity matters
A developer may undertake significant due diligence before acquiring or developing a site. That can include:
- Preliminary design
- Engineering investigations
- Consultant reports
- Planning advice
- Feasibility studies
- Infrastructure enquiries
- Quantity surveying
- Legal work
The developer may then spend months progressing the project. If a critical infrastructure constraint emerges later, the consequences can be substantial.
The project may require:
- Redesign
- Additional infrastructure
- Alternative staging
- Increased costs
- A longer programme
- Additional approvals
- Changes to the development yield
In some cases, the original development economics may no longer work.
Why early due diligence matters
The purpose of early due diligence is not to eliminate every risk. That is impossible.
The purpose is to identify the risks that could materially change the project before significant money is committed.
A good development feasibility should therefore consider more than land cost plus construction cost. It should test the assumptions behind the entire development pathway. For example:
- SiteCan the proposed development physically be built?
- PlanningCan the intended yield and use be consented?
- InfrastructureCan the site be adequately serviced?
- ConstructionAre the ground conditions, access and methodology understood?
- ProgrammeHow long will the project realistically take?
- FundingCan the project remain funded if the programme extends?
- MarketWill the expected sales, rents or operating income still support the project?
The importance of timing
One of the most dangerous assumptions in development is that an answer received today will necessarily remain valid throughout the project.
Development programmes can extend for months or years. Infrastructure capacity, regulations, market conditions, construction costs and funding conditions can all change.
That is why critical assumptions should be identified, documented and monitored throughout the project.
A practical development risk register
Before committing significant capital, a developer should identify the major risks and assess:
- ProbabilityHow likely is the risk?
- ImpactWhat happens if it occurs?
- TimingWhen could it affect the project?
- MitigationWhat can be done now to reduce the risk?
- CostWhat financial exposure could it create?
- Decision pointAt what stage does the developer need to make a go/no-go decision?
This turns vague development uncertainty into something that can actually be managed.
Development risk is not just a developer problem
The same principle applies to organisations developing property for their own use.
Schools, community housing providers, charities, commercial organisations and other property owners can face the same risks. The difference is that they may have less internal property expertise available to identify them.
When should you bring in project management expertise?
Ideally, before the project becomes committed.
A client-side project manager or development manager can help coordinate the early investigations, consultant team, feasibility, programme and risk assessment.
The objective is not to predict everything that will happen. It is to make sure the major risks are visible before they become expensive.
The key question
Before progressing a development, ask:
“What could make this project materially more expensive, slower or less achievable than we currently assume?”
Then test those assumptions.
That is development risk management.