What is a property developer?

A property developer is the party that initiates and organises a building project at its own expense and risk: acquiring the land or building, commissioning a design, obtaining consents and finance, letting the building contract and then selling or letting the result. The developer does not build — the contractor does — and does not design — the architect does. Their product is the project as a whole.

The defining word is risk. A contractor builds for an agreed price; the developer has often sunk money into land, surveys and design fees years before the first spade goes in, with no certainty that the scheme will proceed.

What a developer does

1. Initiative — identifying a site or a market need
2. Acquisition — buying land or property, or agreeing an option or development agreement
3. Feasibility — a first residual land value and development appraisal, market research, ground and environmental surveys
4. Design — directing the architect and consultants, negotiating with the planning authority and neighbours
5. Consents — planning permission, building regulations approval
6. Contracting — tender or two-stage procurement, building contract
7. Sales or letting — often with a pre-sale threshold as a condition of starting on site
8. Delivery — controlling cost, time and quality through to handover

The business model and its risks

Residual valuation is central: value on completion minus build costs, professional and finance costs, and a profit-and-risk margin gives the maximum land price. If anything moves on either the value or the cost side, land value takes the strain immediately.

The main risks: delay in the consenting process (each year costs interest), build cost inflation between appraisal and tender, sales risk, and planning risk if a scheme turns out not to be consentable.

Types

• Commercial developer — develops for the market, often housing or commercial property
• Contractor-developer — a construction company with its own development arm
• Investor-developer — develops for its own investment portfolio
• Housing association — develops affordable housing within a regulatory framework
• Self-build and custom-build groups — the future occupants take on the development role themselves, individually or collectively

What a buyer should check

• Read the contract of sale and building agreement and check what warranty or structural guarantee is included
• Note the conditions precedent: pre-sale threshold, consents, finance
• Check the completion date and what has been agreed if it is missed
• Ask about the variations and options list and the date by which choices become final

Related terms

• Building costs
• Tendering
• Procurement
• Design brief
• Client

Want to learn more about construction terms? Visit our knowledge base at fredsdiyplans.com.