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Risk Management A Must These Days

Risk Management A Must These Days

Effective risk management is essential for developers to succeed, but if you do your homework you can reap the benefits, writes Anthony Corin.

By: Anthony Corin

3 June 2024

Property development in New Zealand is a lucrative industry, but not one without risks. There are various hiccups that can arise in the planning and construction process that can cause delays, cost blowouts, or a project’s suspension.

To steer your project towards success and maximise returns it’s critical that effective risk management is implemented. A developer would be wise to engage professionals that have experience with overcoming property development hurdles, communication with councils, and are confident to navigate expected and unexpected challenges to ensure your project crosses the line.

Solid Planning

A project that stands on solid planning is much more likely to succeed. Navigating the legal and regulatory landscape is an aspect of project management. This includes understanding zoning restrictions, land controls and designations, and compliance obligations that must be met for the project to be stamped with approval by council.

By submitting an application that does not meet compliance requirements completely you are setting yourself up for much higher levels of risk and additional costs. There is occasionally some compromise with councils when granting consent, but this is not certain.

Your best bet at mitigating this risk is to submit a design that completely complies. It’s important to seek professional advice and engage a management team experienced in dealing with local authorities.

During the planning phase, developers should consider environmental risks that may pose a threat to the project’s progress, such as flood sensitive sections. Additionally, developers should consider the effects the project may cause to the environment. The development should minimise the environmental impact of the build to protect the natural landscape and character of the street.

Implementing sustainable design practices, construction, and conducting thorough environmental assessments can help developers mitigate these environmental risks and show their commitment to environmental responsibility.

Build Risk

Possibly the phase with the highest risk in property development is construction related issues. This varies from cost blowouts, quality, supply chain management and materials - all of which can impact project timelines and ultimately project success.

To mitigate these risks, developers must identify these vulnerable areas before construction starts. Engage those who are skilled in construction, and order quality materials. Also ensure you have a reliable network to eliminate supply chain issues.

Budget thoroughly with a contingency, don’t underestimate expenses and allow your budget to cover potential future events. And, of course, you need diligent supervision and site inspections to make sure all contractors and subcontractors are completing the job to a high standard and to minimise labour error.

The Market

Property developers should be very aware of market conditions and how this can pose risk to the profit margin of your project.

The market continues to fluctuate with supply and demand, changes in economic conditions and the needs of the end buyer. To manage these risks you should closely monitor market trends and data from reliable sources so you can decide the right time and right location. You will also need to be flexible with your expectations to navigate the always shifting market.

Effective risk management is essential for property developers to succeed and work through the complexities of the development process. This can be an unpredictable industry, but if you do your homework, you can reap the benefits.

By acknowledging the risks across all phases and having risk mitigation strategies in place you position yourself to better protect your investments, optimise the project, and see a profitable final build.

Anthony Corin and his team specialise in property development and construction using ICFs and operating through a relational contract, open-book system. Shorcom Ltd, 0800 SHORCOM, www.shorcom.co.nz