The aim of this study is to investigate and evaluate the financial feasibility for providing a compact urban housing development in the South African affordable housing market.
The research method involves a literature study and an empirical research undertaken by the researcher to collect accurate market information and investigate the financial feasibility of a proposed township development in the South African affordable housing market.
The argumentation will consider economic, building and financial aspects arising through a development of that nature
Table of Contents
CHAPTER I INTRODUCTION
1.0 BACKGROUND TO THE STUDY
1.1 HYPOTHESIS
1.2 METHODOLOGY
1.2.1 PHASE 1 GENERAL RESEARCH
1.2.2 PHASE 2 DETAILED RESEARCH
1.2.3 PHASE 3 FORMULATION OF KEY FINDINGS AND IMPLICATIONS
1.2.4 PHASE 4 PRESENTATION OF FINDINGS
1.3 RESEARCH OBJECTIVES
1.4 LIMITATIONS
1.5 STRUCTURE OF THIS STUDY
CHAPTER II OVERVIEW OF THE PROPERTY DEVELOPMENT PROCESS
2.0 INTRODUCTION
2.1 THE DEVELOPMENT PROCESS
2.2 THE PARTICIPANTS IN THE DEVELOPMENT PROCESS
2.2.1 THE DEVELOPER
2.2.2 THE PROJECT MANAGER
2.2.3 ARCHITECT
2.2.4 QUANTITY SURVEYOR
2.2.5 CIVIL AND STRUCTURAL ENGINEER
2.2.6 CONTRACTORS
2.2.7 FINANCIAL INSTITUTIONS
2.2.8 OTHER CONSULTANTS
2.3 A MODEL FOR THE DEVELOPMENT PROCESS
2.3.1 FINDING A COMPREHENSIVE MODEL
2.3.2 KEY STAGES IN THE DEVELOPMENT PROCESS
2.4 CONCLUSION
CHAPTER III THE REAL ESTATE MARKET
3.0 INTRODUCTION
3.1 CHARACTERISTICS OF THE REAL ESTATE MARKET
3.2 THE PROPERTY MARKET AND THE MICRO-ECONOMIC APPROACH
3.2.1 DEMAND IN A MARKET SYSTEM
3.2.2 SUPPLY IN A MARKET SYSTEM
3.3 CHARACTERISTICS OF RESIDENTIAL REAL ESTATE
3.3.1 PHYSICAL CHARACTERISTICS
3.3.2 ECONOMIC CHARACTERISTICS
3.4 CONCLUSION
CHAPTER IV THE METHODOLOGY OF FEASIBILITY ANALYSIS
4.0 INTRODUCTION
4.1 DEFINING FEASIBILITY
4.2 KEY STAGES OF A FEASIBILITY ANALYSIS
4.2.1 SOCIO-ECONOMIC FEASIBILITY
4.2.2 PHYSICAL AND LEGAL FEASIBILITY
4.2.3 MARKETING FEASIBILITY
4.2.4 FINANCIAL FEASIBILITY
4.2.5 STRUCTURAL FRAMEWORK OF FEASIBILITY ANALYSIS
4.3 LIMITATIONS OF FEASIBILITY ANALYSIS
4.4 CONSTRAINTS AND LEGAL RESTRICTIONS
4.5 THE INVESTORS FINANCIAL CRITERIA AND THE INVESTMENT DECISION
4.6 CONCLUSION
CHAPTER V FINANCIAL FEASIBILITY
5.0 INTRODUCTION
5.1 SUMMARY OF INPUTS
5.1.1 FORMULATION OF ASSUMPTIONS
5.1.2 COST OF IMPROVEMENTS
5.1.3 PRICING
5.1.4 INCOME/TIMING OF INCOME
5.2 REAL ESTATE TRADE
5.2.1 PROJECTED INCOME STATEMENT
5.2.2 PROJECTED CASH FLOW STATEMENT
5.2.3 PROJECTED BALANCE SHEET
5.2.4 BREAK-EVEN ANALYSIS
5.2.5. RATIO ANALYSIS
5.2.5.1 LIQUIDITY RATIOS
5.2.5.2 ASSET MANAGEMENT RATIO
5.2.5.3 DEBT MANAGEMENT RATIO
5.2.5.4 PROFITABILITY RATIOS
5.2.5.5 CASH FLOW RATIOS
5.3 REAL ESTATE INVESTMENT
5.3.1 OPERATING INCOME STATEMENT
5.3.2 DEBT TO EQUITY RATIO VERSUS LOAN TO VALUE RATIO
5.3.3 DEBT COVERAGE RATIO
5.3.4 INCOME MULTIPLIERS
5.3.5 OPERATING RATIO
5.3.6 BREAK-EVEN RATIO
5.3.7 OVERALL CAPITALISATION RATE
5.3.8 EQUITY DIVIDEND RATE VERSUS CASH-ON-CASH RETURN
5.3.9 BROKER’S RATE OF RETURN
5.3.10 PAYBACK PERIOD
5.4 INVESTMENT VALUATION
5.4.1 INVESTMENT EVALUATION
5.4.2 DISCOUNTED CASH FLOW APPROACH
5.4.3 TIME VALUE OF MONEY
5.4.4 NET PRESENT VALUE METHOD
5.4.5 INTERNAL RATE OF RETURN METHOD
5.4.6 PAYBACK METHOD
5.4.7 ACCOUNTING RATE OF RETURN
5.5 CONCLUSION
CHAPTER VI CASE STUDY: TOWNSHIP DEVELOPMENT
6.0 INTRODUCTION
6.1 CLIENT GOALS AND OBJECTIVES
6.1.1 STRATEGIC OBJECTIVES AND PRIORITIES
6.1.2 ACCEPTABLE TACTICAL OBJECTIVES
6.2 PROJECT BRIEF
6.3 LOCAL MARKET ANALYSIS
6.3.1 SUPPLY ANALYSIS
6.3.2 EFFECTIVE DEMAND FOR THE PRODUCT AT A PRICE
6.3.3 AGENT SURVEY
6.4 FINANCIAL PLANNING
6.4.1 KEY ASSUMPTIONS
6.4.2 PRICING
6.4.3 PROFIT ANALYSIS
6.4.4 CASH FLOW PROJECTION AND ANALYSIS
CHAPTER VII CONCLUSIONS AND RECOMMENDATIONS
7.0 INTRODUCTION
7.1 FINDINGS
7.2 KEY CONCLUSIONS
7.3 CONCLUSION ON THE HYPOTHESIS
7.4 RECOMMENDATION
Objectives and Topics
The primary objective of this study is to investigate and evaluate the financial feasibility of a compact urban township development within the South African affordable housing market, testing the hypothesis that such a project can be economically viable and satisfy investor requirements.
- Analysis of property development processes and key participant roles.
- Investigation into the dynamics and characteristics of the South African affordable real estate market.
- Methodological framework for feasibility studies, including risk and financial appraisal.
- Evaluation of financial performance tools, cash flow projections, and investment valuation techniques.
- Case study on a specific township development in the Western Cape region.
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1.0 Background to the Study
The need for compiling this study arose as a combination of changes of general market conditions and positive changes in the local sub-market, improved the market conditions and the viability of the project. In micro-economic terms, these improvements directly influenced the economic viability of the proposed township development. As a consequence, these improvements led to the necessity to reconsider certain parts of the initial feasibility analysis undertaken by NM& Associates.
In 2001, the previous owner and developer appointed the town planners of NM &Associates to compile a feasibility study for the evaluation of the viability of the proposed concept, on the subject site, and in the subject context. The report was finalised and issued to the developer in 2001. In 2002, the subject site was sold to the new owner and a South African based project management company was founded to commence the implementation of the proposed development. However, because of various reasons the developer did not implement the development at this time, and only recently, in the beginning of 2004, implemented the development on the subject site. Since then, positive changes of general market conditions and a more positive economical outlook of the South African economy in combination with a current shortage of affordable housing created a more attractive environment in the privately developed real estate market. As a result of these current market trends, the local sub-market received attention of Government bodies and private companies to upgrade the area and the subject site participated of these positive trends and opened new opportunities for the developer to implement the concept successfully.
Summary of Chapters
CHAPTER I INTRODUCTION: This chapter outlines the context and need for the study, defines the research hypothesis, and introduces the methodology and objectives.
CHAPTER II OVERVIEW OF THE PROPERTY DEVELOPMENT PROCESS: This chapter provides an in-depth examination of the complex property development process, its participants, and identifies suitable models for development.
CHAPTER III THE REAL ESTATE MARKET: This chapter covers the general characteristics of real estate as a commodity and explains micro-economic dynamics like supply and demand.
CHAPTER IV THE METHODOLOGY OF FEASIBILITY ANALYSIS: This chapter defines feasibility and provides a structured framework for conducting a comprehensive feasibility study.
CHAPTER V FINANCIAL FEASIBILITY: This chapter focuses on financial tools, statements, and valuation techniques necessary to evaluate the financial viability of a property project.
CHAPTER VI CASE STUDY: TOWNSHIP DEVELOPMENT: This chapter applies the previously discussed concepts to a practical case study of a township development, evaluating its specific objectives and financial planning.
CHAPTER VII CONCLUSIONS AND RECOMMENDATIONS: This chapter summarizes the findings of the study, concludes on the research hypothesis, and provides strategic recommendations.
Keywords
Real Estate, Feasibility Analysis, Property Development, South Africa, Affordable Housing, Cash Flow, Financial Viability, Market Analysis, Investment Valuation, Net Present Value, IRR, Property Management, Land Development, Risk Management, Urban Planning
Frequently Asked Questions
What is this research paper primarily about?
This thesis investigates and evaluates the financial feasibility of a compact urban township development within the South African affordable housing market.
What are the core thematic areas of the study?
The core themes include the property development process, real estate market dynamics, financial feasibility analysis, and investment valuation techniques.
What is the primary objective of this research?
The primary goal is to determine if a specific proposed township development is economically viable and satisfies the financial goals of the investor.
Which methodology is employed in the thesis?
The study uses a combination of literature review, empirical research, and the creation of a cash flow model to test the project's viability using tools like Net Present Value (NPV).
What topics are discussed in the main body of the work?
The main body covers the development process model, market analysis characteristics, legal and financial constraints, and the application of financial ratios and valuation methods to a specific case study.
How would you describe the key terms used?
The work focuses on terms such as "feasibility," "net present value," "cash flow," "property development," and "affordable housing," which are critical to assessing the project's financial sustainability.
What is the specific project examined in the case study?
The case study focuses on a township development project located near the R300 and N2 highways between Cape Town and Stellenbosch.
What is the conclusion regarding the hypothesis?
The research concludes that the proposed township development is indeed economically viable and therefore the hypothesis is supported, though the final decision is recommended as conditionally yes.
- Quote paper
- Diplombetriebswirt (FH) Michael Bauer (Author), 2005, The Financial Feasibility of a Township Development, Munich, GRIN Verlag, https://www.grin.com/document/55887
