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Recently, many new words have appeared, the meaning of which is not always immediately clear. One of these is development and development company. From advertising, you can understand that they are connected with construction, but why not call them a builder and a construction company? But because construction is only part of the tasks that developers perform.
What is development, what does a developer do
The very word “development” is a transliteration of English development, the most common translation of which is development (growth).
Development is an entrepreneurial activity associated with the creation of a real estate object, the reconstruction or modification of an existing building or land, leading to an increase in their value.
Accordingly, the goal of a development company is to increase the value of real estate and sell it profitably.
What is the difference between a developer and a builder? The fact that the developer only implements the project – directly conducts construction work, possibly with the involvement of funds. While development involves a full cycle – from idea to final implementation. That is, the development company is engaged in:
- Idea development. It can be a commercial facility – an office building, a shopping mall, etc. There may be a new block of houses, both private and multi-storey.
- Situation analysis. It is calculated how liquid this idea can be, the payback period, possible profits and the degree of risk. Based on these data, a decision is made on the feasibility of the project.
- Search for a site for construction (buildings for reconstruction), acquisition of rights.
- Project creation.
- Search for a contractor for the construction or reconstruction of an object.
- Construction process control.
- Looking for buyers or tenants.
- Object management.
This is the development project. In short, they came up with it, evaluated its effectiveness, found a place and implemented it. It turns out that a development company is an organization that is fully responsible for the entire construction cycle – from an idea to its final implementation. The builder only builds, he can be hired by a development company just for construction. That is, it only performs part of the project.
As you understand, the full implementation of the project is a big risk. Such companies finance projects either by themselves or with the attraction of funds. Shared construction is possible. But they also invest their money, and they will receive profit only at the implementation stage – from sale and rent.
Types and features of development activities
If we talk about the tasks of development in general, this is an increase in the value of a building, a complex of buildings, a piece of land. One of the directions is reconstruction. This is a development in the secondary market. Often, the activity is associated with a change in the purpose of the building. An old building or group is bought, completely rebuilt, then either sold or operated by the company itself.
If we talk about building from scratch, then the task of a development company in this case is to build the most liquid building. In any case, it is necessary to be aware of the market and its development trends. Must have knowledge of construction technologies, the presence of experienced marketers and managers. Often a development project is the construction of not one building, but a whole group or village. Then the project includes the creation of infrastructure. In general, the structure of the company can be different – according to the tasks that it undertakes to implement.
There are two types of development companies:
- Fee development (fii development).
- Speculative development (speculative development).
If an organization works on the principle of Fee-development, it implements projects for the customer. In this case, the risks of the development company are less, as the funds are usually invested by the customer. The interest of the customer in this case is that the developers have established relationships with professionals for the implementation of any part of the project. They either maintain a staff (very rarely) or delegate a specific task to a specialized company. But they themselves have specialists who monitor the quality of work. In this regard, the risks are less, the return on investment is higher.
Developer Speculative companies build for themselves. They are not going to sell the objects, but leave it in the management. In this case, the interest in the quality implementation of the project is higher – after all, you will have to solve all the problems of operation on your own. But the risks are higher, respectively, the cost per square meter too. But the result is likely to be better.
Land development
Land development or land development (from the English Land – land) is a type of activity that involves increasing the value of a land plot. Typically, this activity is associated with a change in the purpose of the site, its division into smaller plots, the laying of communications with the subsequent sale for development. Moreover, most often, such plots are bought by developers-builders for the implementation of their projects. In short, the scheme is exactly that.
As a result of the actions of the land developer, an ordinary land plot turns into a site ready for the start of construction, which is important with the paperwork. It is only necessary to issue a change of copyright holder.
Why is this type of activity singled out as a separate group? Because it is a long and complicated process. For example, the change of appointment procedure may take more than one year. At this stage, it is required to collect up to 250 signatures. The amount of payments (official and unofficial) is also impressive. This type of activity is considered the most risky. Since it is necessary to have an idea not only about market trends, but also about the development strategy of the region, the solvency of future customers, planned changes in the regulatory and legislative framework, and a lot of other things that are difficult to predict.
Choosing a piece of land for its activities, a development company first determines who may be interested in this project – a group of possible consumers is determined. Accordingly, the level of landscape design, buildings and infrastructure is planned strictly in accordance with the class of customers.
At the same time, a plan to attract investors’ funds is being thought out, since the company’s own invested funds usually amount to 20-30% of the total amount. Close attention is paid to the ecological state of the site under consideration, the possibility and prospects for the development of transport links with neighboring urban areas and the center.
How to choose a developer
The reliability of a development company is determined by the number of successfully implemented projects. This is the main measure of success and reliability. It is clear that usually these are large and “old” players who have been on the market for many years. This is precisely the difficulty in the development of this market segment: it is very difficult for young organizations to enter the business. In addition to the fact that a very considerable capital is required, well-established connections, a staff of specialists and potential customers are needed. At the same time, the implementation of ready-made projects may not be so successful, not because of the low quality of work, but because of the lack of authority and name, a low level of trust.
Each region has its own rating of development companies. Large and well-known to everyone, they can simultaneously run several large projects, because, thanks to the name, they easily attract investors’ funds. If you are planning to invest in an object under construction, it is such a company – with a name, a large number of built and commissioned objects – that is worth looking for.
There may be several such development companies or projects in big cities. To choose, compare the attractiveness of the object for yourself. At the same time, it is necessary to evaluate not only in terms of the necessary funds, but also in terms of a possible increase in the value of your “piece” of real estate. If other projects are being implemented near or nearby, most likely, the cost will increase rapidly, as well as the connection with other areas and the center, other cities will improve.
And another piece of advice: do not be lazy, go to the already commissioned objects, selected companies. Walk around, look at how everything is arranged, whether it is convenient or not, whether you like what you see or not. Pay attention to the condition of the building a few years after delivery. The point is not only in the management company, but also in the quality of the project, in the observance of technologies and the use of normal materials. In general, there are many components of success and authority. Based only on promises and advertising brochures – expose your money to unjustified risk. After evaluating the results of the work, it is easier to make a decision. And, more importantly, to be more confident in the results, and this is worth a lot.