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  • Writer's pictureMelissa Safak

4 Common Challenges that Property Developers Face

Updated: Apr 17

Despite the potential for high profitability, property development is fraught with risks that can impede the project's success and profits. In this regard, developers face several challenges in the real estate industry. How could property developers tackle these challenges and ensure successful outcomes? In our blog post, we identify four important challenges and share insights for property developers to improve their processes efficiently and drive value throughout the development processes.

Two property developers are on site

 

Regulatory Compliance

Some primary challenges are working within legislative, statutory, and regulatory compliance, which, if not accurately understood, recorded, or actioned, can cause delays or refusals in obtaining the necessary permissions. Similarly, and for the right reasons, Sustainability and Safety compliance is high on the property development compliance agenda. Therefore, it is important that property developers ensure they understand and appoint the necessary experts to support them in managing these requirements. Due to the uncompromising administrative requirements of the documentation associated with these tasks, including authorisations and approvals, it is critical that activity owners and respective actions are identified early in the process; manual administration of these requirements presents the risk of simple human error.  

 

Economic Challenges

Another significant challenge faced by property developers was the economic impact of interest rate rises and the commensurate fallout to the real estate market continues to adjust.  The UK economy has been dealing with high inflation and high-interest rates for various national political and geopolitical reasons.  Few real estate development projects are entirely equity financed, making funding more challenging to secure, and where this can be secured, it can attract more onerous arrangement conditions. Property developers adopt various real estate development strategies to minimise economic disruption. For instance, they may explore forward funding and strategic alliances to create joint ventures, reducing the risk that economic fluctuations cause.

A property developer looks on an Ipad

Additionally, developers can adopt risk management software that reduces operational costs through efficient information management and change control, mitigating the risk of human error through automation of processes, tasks, and authorisations. These are all fundamental in funding development management and the construction process. Selecting the right digital offering has the potential to protect scheme profitability by mitigating the risk of errors and omissions or simply avoiding the risk of making timely or critical decisions based on out-of-date information.

Cost Management in Property Development

Property development involves careful budget planning from start to finish. This includes accounting for fluctuating finance, labour, and materials costs.  Along with accommodating these metrics, property developers must navigate through fundamental changes to building safety and sustainability compliance and best practices, which can quickly cause budgets to be exceeded.   So, maintaining real-time financial planning control is crucial to prevent cost overruns. Additionally, strong project leadership is necessary for even the most meticulously planned developments to stay on track due to the unexpected obstacles manifesting during the respective development stages.

 

Property developers must measure and calculate each opportunity's risks. Unpredictable challenges will arise and require prompt decision-making to keep the project on track. Accurate information and data are key to facilitating this. Having the correct digital tools can mitigate delays through the respective RIBA Stages, ensuring the development maintains its target programme, budget, compliance, and quality objectives.    The right software can put simple controls in place that not only ensure the wider development stakeholders, professionals and construction team are able to understand who is responsible for individual tasks and actions transparently but also that these actions are completed on time, difficult to successfully achieve using traditional office software applications. 

 

Supply Chain Risks

Brexit, COVID-19, and other ongoing geopolitical events have made it increasingly challenging to obtain production resources and materials. This has resulted in manufacturing and supply disruption, leading to a 24% price increase over the past year. Further headwinds are forecast through 2024 and beyond.


BCIS graph on supply chain

Building Cost Information Service Construction Data (BCIS) forecasts prices, costs, and demand from 2023 to 2028. According to the figure above, new output work dramatically decreased between 2023 and 2024. On the other hand, relief in materials costs is expected. However, notwithstanding that new work output and material costs will improve and production is likely to increase, focusing on cultivating supplier loyalty would also play a crucial role in avoiding supply chain shortages.

Conclusion

The path to success in property development requires a deep understanding of the market and its regulations and an agile management approach. Developers who can anticipate and mitigate these challenges, leveraging technology and fostering strong relationships with all stakeholders, will be better positioned to navigate the uncertainties of the real estate market. As the industry continues to evolve, developers must remain vigilant and adaptable. The ability to forecast changes, manage risks, and embrace innovative solutions will define the future leaders of real estate development. With a forward-looking approach and a commitment to excellence, developers can turn these challenges into stepping stones toward achieving sustainable growth and profitability in their projects.

 

 

 








 


 

 

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