In property finance, success is often defined by the quality of decision-making. At the heart of these decisions lies a rigorous process of due diligence — an approach that ensures each project is thoroughly assessed for feasibility, risk, and potential return.
This is not a process driven by instinct or intuition; it’s a methodical and measured analysis that blends experience with data to make informed choices about where to invest resources.
The role of due diligence in property finance is multi-faceted. It begins with feasibility analysis, moves through critical valuation assessments, and draws on external validation to ensure that each project stands on solid ground.
In an industry where conditions such as construction costs and market demand can shift, having a disciplined framework to evaluate each opportunity is essential.
At Solido, where we pride ourselves on our ability to select the right opportunities for our investors, and have a 100% success rate, due diligence is among the most important processes we undertake.
The role of feasibility in project selection
Feasibility analysis is the first filter that every potential property development must pass through.
Rather than relying solely on financial projections, feasibility involves a broader consideration of the project’s alignment with market conditions, geographic dynamics, and long-term potential.
At its core, feasibility examines whether a project makes sense in both the short and long term. It asks questions such as: Is there sustainable demand in the market? Are the projected returns realistic given current and future conditions?
Will the development meet regulatory and planning requirements? These factors are essential in determining whether a project is worth pursuing further.
Given the rise in construction costs and shifts in the economic landscape, feasibility studies now require a more robust approach, and well-rounded experience.
The traditional focus on profitability has expanded to include considerations of inflationary pressures, supply chain disruptions, and broader economic trends that could impact the project’s viability.
These challenges underscore the importance of comprehensive feasibility assessments in today's property finance environment.
Valuation: beyond the numbers
Valuation reports provide critical insight into a project’s potential worth, but they are not infallible. A well-considered approach to valuation requires more than just accepting numbers at face value; it involves critically analysing the assumptions behind those numbers.
In property finance, valuations are often based on historical data or optimistic forecasts. However, relying on these figures without deeper scrutiny can lead to miscalculations. A thorough due diligence process includes challenging the valuation, comparing it with current market data, and ensuring that it reflects the realities of the economic climate.
This makes certain that financial decisions are grounded in a realistic understanding of the project’s value, not just an overly optimistic assessment.
Valuations, in this case, are not static — they are part of a dynamic process that can be influenced by changing conditions.
By taking a thoughtful approach to valuation, finance professionals can ensure the numbers reflect both market realities and potential risks.
External validation: gathering real-world insights
Even the most detailed internal analysis can benefit from external validation. Engaging with peers, developers, and other industry experts provides additional perspectives on the viability of a project.
This step is crucial for confirming that the assumptions driving the project are consistent with broader market trends.
External validation can be particularly valuable in markets where conditions are rapidly changing.
Speaking with other professionals who are active in the same geographic area or working on similar projects can provide up-to-date insights that may not be reflected in historical data. This real-time information helps confirm whether the project's feasibility assumptions hold true and whether adjustments are necessary.
In essence, external validation serves as a check against internal biases or overconfidence. It broadens the scope of analysis and ensures that decisions are based on a comprehensive view of the market.
The financial strength of builders is a critical component
While much attention is paid to market feasibility and valuation, the financial health of the builder is another key aspect of due diligence.
A well-capitalisted builder with a strong balance sheet is essential to the success of any development.
This is especially important in times of rising construction costs, where unforeseen expenses can strain a project’s budget.
Evaluating a builder’s financial stability ensures they have the capacity to manage the demands of the project, particularly in challenging economic conditions. If a builder lacks sufficient working capital, there is a risk that delays or budget overruns could compromise the entire project.
Assessing the financial strength of all key partners, including builders, is an essential part of safeguarding the project’s success and minimising risks to investors.
A disciplined approach to risk
In property finance, the decision to proceed with a project should always be based on a careful and disciplined evaluation of risk.
Due diligence helps identify potential challenges before they escalate and allows finance teams to decide whether those risks can be managed effectively. This disciplined approach is what separates successful projects from those that falter under unforeseen pressures.
A key part of this risk management is knowing when to walk away. Not every project, no matter how promising it may seem on paper, is worth pursuing.
Having the discipline to say no — whether due to financial concerns, market misalignment, or issues with feasibility — can prevent costly mistakes down the road.
In an industry where conditions can change rapidly, maintaining a steady and thoughtful approach to risk is essential. By applying a structured framework to assess each project’s feasibility and potential, finance professionals can make decisions that are both informed and prudent.
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