Property Development Feasibility: How to Calculate Profit Before You Build
Every development project lives or dies on one number: profit margin on GDV. Before you agree to a land price or sign a build contract, here's how to run a proper feasibility appraisal — and what the numbers need to look like for a project to stack up.
A viable residential development project needs a minimum 20% profit margin on GDV (Gross Development Value). The formula is: Profit = GDV − Land − Build − Finance − Marketing − Other Costs. A project returning less than 15% margin typically carries more risk than reward for most developers.
Run your own project through our developer profit calculator to see profit, ROI, and margin instantly.
What a Feasibility Study Actually Is
A development feasibility study (also called a development appraisal) is a financial model that answers one question before you commit to buying land or commencing construction: does this project make commercial sense?
It's not a complex spreadsheet — it's a structured way of stacking revenue (GDV) against costs (everything else) to arrive at an expected profit. The key discipline is being honest about costs, not optimistic. Developers who lose money almost always underestimated construction costs, finance charges, or sales timelines — rarely all three.
The Core Feasibility Formula
Profit Margin (%) = Profit ÷ GDV × 100
Return on Cost (ROI) = Profit ÷ Total Costs × 100
Step 1: Estimating GDV (Gross Development Value)
GDV is the total market value of all units once completed and sold at prevailing market prices. It is always stated gross — before any costs are deducted — and is the top line of your feasibility.
To estimate GDV:
- Research recent comparable sales in the same street or suburb — same property type, similar size.
- Calculate a rate per square metre (or square foot) from those comps.
- Multiply that rate by your total sellable floor area.
- Apply a conservative discount (5–10%) to your comparable rate to account for market movement during construction.
If comparable 2-bedroom apartments nearby sold for $650,000 and you're building 8 of them, your GDV estimate is $5,200,000 — before discounting for time. Use our area unit converter to switch between sqm, sqft, and other measurements when working with comparable sales data in different formats.
GDV is an estimate, not a guarantee. Market conditions can shift during a 12–24 month build cycle. Experienced developers model GDV at 5–10% below current comparables to build in a margin of safety, especially in markets that have recently risen sharply.
Step 2: Land Acquisition Cost
Land cost includes more than the purchase price. The true land cost is:
- Purchase price
- Stamp duty / transfer tax
- Legal and conveyancing fees
- Due diligence costs (soil reports, planning checks, surveys)
- Holding costs while planning is obtained
Land typically represents 15–35% of total costs in urban residential projects. If your total costs are $4,000,000 and land is $1,500,000, you're at 37.5% — which is high and squeezes the remaining build budget. A good feasibility makes this ratio explicit so you know early whether the land price is workable.
Step 3: Construction / Build Cost
Build cost is typically the largest single cost line. Key components:
| Component | Typical Range |
|---|---|
| Base construction cost | $1,500–$3,500/sqm depending on spec and location |
| Professional fees (architect, engineer, PM) | 8–12% of build cost |
| Planning/permitting fees | $5,000–$50,000+ depending on jurisdiction |
| Infrastructure & services | $20,000–$80,000 per lot (varies widely) |
| Contingency | 5–10% of build cost |
Always include contingency. Construction projects almost always encounter unexpected costs — site conditions, material price fluctuations, scope changes. A 7.5% contingency on a $3,000,000 build budget is $225,000 set aside for what you haven't planned for yet.
Step 4: Finance Costs
If you're borrowing to fund the development — which most developers do — finance costs are a major line item that many feasibility studies underestimate.
Development finance typically runs at a margin above the base rate (often totalling 7–10% per annum) on the drawn balance. Because costs are drawn progressively as construction proceeds, you don't pay interest on the full loan from day one — but you need to model the interest curve across the full loan period.
A simplified approach: estimate interest at 5–8% per annum on the combined land and build cost, scaled by your expected loan period. On a $4,000,000 land + build cost at 7% over 18 months, that's roughly $350,000 in finance costs.
Step 5: Marketing and Sales Costs
Marketing and selling completed units typically costs 2–4% of GDV:
- Agent commission on each sale (typically 1.5–3% per unit)
- Marketing materials, renders, display suite costs
- Online advertising and property portals
- Legal costs for off-the-plan contracts
On a $5,200,000 GDV project at 3%, that's $156,000 in sales and marketing. Budget separately for agent commissions on each individual sale to get to an accurate figure.
What the Numbers Need to Look Like
| Profit Margin on GDV | Assessment |
|---|---|
| 20%+ | Strong — viable for most lenders and investors |
| 15–20% | Acceptable — workable but with limited buffer |
| 10–15% | Thin — risky; any cost overrun erodes viability |
| Below 10% | Not commercially viable for most developers |
Worked Example: 8-Unit Apartment Project
| Item | Amount | % of GDV |
|---|---|---|
| GDV (8 units × $650,000) | $5,200,000 | 100% |
| Land acquisition | −$1,200,000 | 23.1% |
| Build cost (inc. contingency) | −$2,200,000 | 42.3% |
| Professional fees (10%) | −$220,000 | 4.2% |
| Finance costs (7% × 18mo) | −$315,000 | 6.1% |
| Marketing & sales (3%) | −$156,000 | 3.0% |
| Other costs | −$60,000 | 1.2% |
| Total Costs | $4,151,000 | 79.8% |
| Profit | $1,049,000 | 20.2% |
| ROI on Cost | 25.3% | |
This project sits just above the 20% viability threshold — strong enough to proceed, but not so comfortable that a 10% cost overrun on construction wouldn't require renegotiating the land price or redesigning the scheme.
The Land Residual: Working Backwards from Viability
One of the most powerful uses of a feasibility model is running it in reverse: given a target profit margin, what is the maximum land price you can pay?
If your GDV is $5,200,000, build and all other costs are $2,951,000, and you need 20% profit ($1,040,000), the maximum land price is $1,209,000. This is called the residual land value — it tells you what the land is worth to you as a developer, regardless of what the seller is asking.
Frequently Asked Questions
What is a good profit margin for property development?
Most lenders and experienced developers target a minimum profit margin of 20% on GDV for residential development. Margins of 15–20% are acceptable but leave little room for cost overruns. Below 15% is generally considered too thin to absorb the inherent risks of development.
What is GDV in property development?
GDV stands for Gross Development Value — the total market value of all completed units at market price. It is the revenue side of a development appraisal. GDV is estimated based on comparable sales and is always stated gross, before any costs are deducted.
What costs go into a development feasibility study?
A full feasibility includes: land acquisition, construction cost, professional fees (architects, engineers, planners), finance costs (development loan interest), marketing and sales costs, planning levies and contributions, and a contingency reserve — typically 5–10% of build cost.
What is the difference between profit margin and ROI in development?
Profit margin is profit divided by GDV — how much of the sale revenue is profit. ROI (return on cost) is profit divided by total costs — how much you made on every dollar invested. A project with $1,000,000 profit on $5,000,000 GDV has a 20% margin. The same profit on $4,000,000 in costs gives a 25% ROI.