The wise homebuyer always checks the fundamentals of a property developer before committing their hard-earned money to buy a home. Horror stories of abandoned housing projects or numerous defects in homes due to cost-cutting are but some of the many reasons that make a homebuyer hesitate.
As with most tragedies, prevention is always better than cure. Hence the prudent homebuyer or investor pays attention to the aspects that make up a stable, dependable developer. One vital aspect that requires attention is land banking.
Not your average piggy bank
What is land banking? It is described as a situation where the developer buys a plot of land to be developed in the future. The size of the developer’s land bank is indicative of its ability to generate income, which is dependent on its future projects.
This is even more important for a publicly listed company since the rise and fall of its financial well-being will affect its many shareholders and stakeholders. Also, the property development industry is filled with many rules and regulations which need to be complied with.
Developers nearing the end of one development project cannot simply grab land off the shelf and start developing. If the market they are operating in has strict land-use regulations, then they are forced to navigate the system and seek approval, all of which require a lengthy process. While that is happening, their production and resources are sitting idle.
No magic, just logic
With that said, you really don’t need to look into a crystal ball to know if a developer is going to do well. Keep the tarot cards and Ouija board too. Just get an internet connection and Google Maps.
Up to a certain extent, the success of a developer can be predicted by finding out the position of their land bank and the size of it. If the area is in a strategic location, most likely, its future income is assured.
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