Feasibility Studies for Construction and Real-Estate Projects
A feasibility study compares the cost of developing a project against its expected return to decide, before any commitment, whether it is worth building at all.
The cost side
The land and its transfer fees, design, supervision and permits, the construction cost itself, external works and connections, financing through the build period, and operation and marketing until occupancy. The commonest error in individuals’ studies is to count the construction cost alone and forget the rest — and the rest can reach a quarter of the total.
The return side
Expected sale or rental income at current market prices rather than hoped-for ones, a realistic occupancy rate, and the annual operating, maintenance and management expenses. Net return divided by total investment gives a first indicator that can be compared against other investment options.
How estimating accuracy changes the answer
Construction cost is usually the largest line in the study, so a 15% error in it turns the conclusion upside down. Start with an indicative per-square-metre estimate for the project type and its city to get a quick range, then move to pricing a preliminary bill of quantities before any major commitment.
Sensitivity testing
Do not settle for one number: calculate the result under three scenarios by varying the three most important inputs — construction cost, rent level and time to occupancy. A project that stays viable under the pessimistic scenario is one you can enter with confidence; a project that only works under the optimistic one is a decision to postpone.
Worked example
A 900 m² plot for a residential building with 2,400 m² of built-up area: a construction cost range of SAR 1,500 to 1,900 per metre gives SAR 3.6 to 4.56 million, with design, permits, connections and financing on top. Comparing that range against the expected rental income in the district showed the project only bore the lower end of the cost, so the target finishing level was changed before design.
FAQ
How accurate is the cost estimate at feasibility stage?
An indicative estimate gives a range accurate to roughly ±20%, which is enough for a go/no-go decision but not enough for contracting or final financing.
Should I include the land cost if I already own it?
Yes — at its current market value, because using it on this project means giving up selling it or investing it elsewhere, and leaving it out flatters the result without justification.
When do I move from an indicative to a detailed estimate?
Before buying land at a significant price, before contracting with a builder, or before applying for finance. Any large financial commitment deserves a priced bill of quantities, not a rate per square metre.
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