Frequently Asked Questions
Here are the answers to some frequently asked questions about property development and project management:
Do I need a project manager (client side) to project manage my property development?
No. In fact many novice property developers don’t use one in a misguided attempt to save money. But it’s usually false economy.
That’s because an experienced project manager knows what to do before it needs to be done. They know the steps in detail. When new challenges arrive, they know the right actions to take to quickly resolve them. This comes from years and years of experience. This ensures the project runs to schedule and is within budget, and that the agreed scope is delivered.
Identifying potential risks and managing them, having the right people doing the right things when they need to do them, efficiently and effectively dealing with issues and challenges, keeping to schedule and budgets throughout the development impacts directly on your bottom line.
Finishing your project sooner and within an agreed budget has a direct and significant cost saving to you.
How do I select a good project manager?
Choose someone with experience, professional qualifications and credibility in the specific area that you intend to develop. The traits of a good project manager are:
- Experience in development projects – especially the type you’re planning to build
- Excellent people and communication skills
- Ability to see the “big picture”… and not just the many issues that crop up along the way to completion.
- Dedication to their profession – look for professional educational qualifications and memberships of professional associations including the Australian Institute of Project Managers (AIPM)
The builder has a project manager. Do I need one too?
The “builders” project manager is completely separate to an “independent” project manager that you appoint. The builders project manager look after the builder’s interests. This includes the procurement of materials, trades and resources needed on site at a specific time. It also includes ensuring that the builder has the necessary permits and design documentation to complete their contracted works.
Your “independent” project manager (known as a “client-side” project manager) is appointed to look after your interests. They are there to ensure that the builder performs within the contract and is paid only for that performance. They are there to ensure the right design and documentations is provided to the builder. They are there to manage the risks from your perspective. They are there to deal with and manage any changes and their cost and program impact.
Finally, a client-side project manager often takes on a “superintendent” role within your contract with the builder. While the builder “owns the contract”, your project manager administers it. If your project manager is not referred to within the building contract, then it’s quite likely that your project manager may not have a lot of influence over the building contractor.
What’s the difference between a project manager and a development manager?
Development projects can usually be broken up into many parts and each part needs to be managed. Initially there is the site feasibility and acquisition. Then there’s a planning and approvals stage. Next comes the construction stage. Finally there is a leasing or selling stage.
A project manager has specialist knowledge relating to a specific area and may be engaged only for a single stage or an area of development. A development manager has broader knowledge and skills and is usually engaged across the entire development process. A development manager may also perform a project management role at each specific stage.
At Montek we do both project development and development management.
How much does a project manager cost?
Project managers’ fees are based on their role and responsibility. At Montek our engagement can be very specific or it can be very broad.
Sometimes project management fees are charged on a percentage of the overall project cost. In other instances a project manager engagement is done on an hourly rate. Rates charged by independent project managers are dependent on experience and background. While a highly qualified and experienced project manager may charge more for their services, the value of their input – in terms of costs saved – usually far outweighs the costs.
With professional services you certainly get what you pay for. The top 5% of professionals in any field are the ones that produce exceptional results. Average professionals produce average results. When you consider the total cost of development are you really saving anything by having average people managing your interests? To do the best you need the best you can afford on your team.
Keep in mind that expenses, such as council fees, engineering reports and surveys, aren’t included in the project manager’s fee.
How do I get started in property development?
The first step to becoming a successful property developer is education. Books, seminars and courses are readily available.
A great place to start is Philip Thomas’s excellent book “Profit From Property”. Philip has in the past provided mentoring for up incoming developers who want to give themselves the best chance of success. Unfortunately due to existing commitments at present this service is limited. If you’re interested email Philip on mentor@montek.com.au to check availability.
What’s a “development application” (or DA)?
Development applications are lodged with local government or councils to get approval to construct or alter a building. “Compliant DA’s” adhere strictly to the council’s development specifications. They usually are processed quickly and easily get council approval.
In some Australian states new “Exempt and Complying Development” legislation has made it possible to gain development approval outside Council and local Government. This is done via delegated authority. Usually approval under this method is obtained via an application with an appropriate Private Certifier. This area is of approval is expected to expand in the future.
“Non-compliant DA’s” are for buildings/alterations that don’t strictly adhere to the council’s development specifications. They can take much longer to process and generally require negotiations to get council approval. More extensive non-compliant building approvals often require Court approval.
Zoning and DA guidelines are available on council websites. Once development approval has been granted additional permits are usually required for construction. This is usually known as a construction certificate. It’s illegal to construct a dwelling on any property without appropriate permits and approval. A competent project manager can efficiently and effectively lodge and manage your DA’s for you.
How long does a property take to develop?
It depends on the type of property. Planning, approvals and permits can take anywhere between six weeks to a year or more depending on the complexity of the development. Construction can take between three to six months for something uncomplicated. Larger projects, especially multi-unit, mixed-use and commercial developments, can take 12 to 24 months or more due to their complexity.
Are there risks associated with property development?
Yes. There are risks with all investments. As we have seen in Europe during the financial crisis even keeping money in a savings bank is not risk free.
Property has its risks too. Common property development risks include:
- Interest rate rises
- Rising building and construction costs
- A downturn in the property cycle
- Disputes with builders and tradespeople
- Building contractors going under
- Site contamination, weather and environmental issues
- Changing council, state or federal laws e.g. zoning changes
- Unexpected costs e.g. structural defects, hidden challenges, poor cost estimation and contract exclusions.
By doing due diligence a skilful project manager will help ensure risks are identified and minimised.