An evaluation of the feasibility studies prepared by property developers in Malta

Abstract

Recent fluctuations in property prices and in development costs created difficulties in the forecasting of project's costs and revenues and in the determination of their viability. The objective of this research is to evaluate the feasibility studies prepared by property developers and to identify differences between the studies of projects of different sizes or types.

Data for this research was obtained through a questionnaire mailed to property developers. Sixty-three valid responses were received and analysed through the use of fourteen chi-square tests. The results were then presented and thoroughly discussed.

Most property developers are price takers. Detailed cost estimates and market studies are not always prepared but nearly all developers work out their basic cashflow projections. The use of Investment Appraisal Techniques is related to size, with large-scale developers being more frequent users of such techniques. Variances in both cost and sales revenues are expected, irrespective of the size or type of the development.

Small-scale developers are more likely to rely on subjective criteria in their judgements and less likely to use objective techniques such as Bills of Quantities and Investment Appraisal Techniques. The detail of the feasibility study is directly related to the scale of the project. Notwithstanding this, detailed studies do not necessarily yield lower variances.

This research was the first of its type to analyse the feasibility studies of property developers in Malta. It sheds light on how developers project costs and revenues and how they assess the feasibility of their proposed projects. It should be of contribution in identifying weaknesses in the feasibility studies and in spurring other research about this topic. It shall also encourage developers to properly evaluate their projects in order to ascertain that they do not end up with unrealisable assets.