What Makes a Real Estate Project Bankable?
Real estate development is often approached from the perspective of what can be built. A more important question is what should be built, for whom, at what cost and under what market conditions? A bankable real estate project is one that demonstrates a credible path to generating sufficient returns while managing the risks associated with development, operation and changing market conditions.
Start with the Market, not the Building. Understanding the market means looking beyond general statements such as “there is demand for housing” or “the area is growing.” What type of housing is being demanded? What are buyers or tenants looking for? What price points can the target market actually support? What is the existing supply? How quickly are comparable developments being absorbed? Actually on this basis, location is not always the prime decider of bankability.
Trends and preferences matter, but they should be supported by evidence rather than speculation. A developer may have the financial capacity to build a particular type of development, but financial muscle does not automatically create market demand. A project driven primarily by what a developer believes will be popular can expose capital to unnecessary risk. This is particularly important when markets are experiencing a construction or investment craze. What is popular today may not necessarily remain commercially relevant throughout the life of the project.
Additionally, you must also account for the full development cost. One of the common weaknesses in real estate planning is focusing heavily on the construction cost while treating other expenses as secondary. The actual development cost begins long before groundbreaking. Land acquisition, legal and statutory costs, feasibility studies, architectural and engineering consultancy fees, approvals, surveys, financing costs, project management, infrastructure, marketing, professional supervision, contingencies and other associated expenses all contribute to the cost of delivering a project. A project that appears profitable when assessed against construction costs alone may produce a very different return when the full development cost is considered.
Moreover, a bankable project should not only make sense at the point of construction but also over its intended investment period. This requires consideration of how the surrounding market, infrastructure, demographics, technology and consumer preferences could change. Good planning therefore asks questions beyond the immediate development cycle.
What happens if demand changes? What happens if a competing development enters the market? What happens if rental or selling prices do not reach the projected levels? The objective is not to predict the future with certainty. It is to prepare the project for reasonable changes in the future. Now comes the test for sensitivity. What happens if construction costs increase? What if sales take longer than expected? What if occupancy is lower? What if market prices decline? What if competition increases?
This starts with the design. Spaces that can serve more than one purpose can provide greater flexibility as market preferences change. A layout designed exclusively for one audience or one use may become difficult to adapt when that market changes. Multipurpose and adaptable spaces can allow a development to respond to changing users, businesses or market segments without requiring substantial reconstruction. . It means designing with the future in mind.
In conclusion, a real estate project can have an attractive design, a prime location and substantial investment behind it, yet still struggle to become a viable investment. Bankability begins much earlier than construction. It starts with understanding who the project is for, what the market needs, what it will cost in total and how well it can withstand changes in market conditions.
A developer may have the financial capacity to build a particular type of development, but financial muscle does not automatically create market demand
For more information, reach out to us via info@rickfes.co.ke
At Rickfes Construction Ltd., we help investors and developers assess market demand, development costs, financial viability and the risks that can affect a project before committing significant capital. We help turn a real estate idea into an evidence-based investment decision.
