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- Acquisition of land with the intention of constructing utilities and surface improvements
- Reselling some or all of the developed sites to project developers or in case of housing to home builders.
Key criteria for land development business:
Before proceeding with the development, however, there must be evidence that the project is feasible or that market acceptance of the end-product (single family houses, offices, warehouses, etc.) is highly likely. This step is important even though the land developer may or may not be the developer of the final product. In other words, in the land development phase, the developer must anticipate and understand the demand for the final product (or products in the case of a mixed-use land development). For example, the economic drivers may alter the land use for residential, industrial, or for commercial developments such as Office Space in Gurgaon.
In residential land development, it is common to find firms specializing in the acquisition of raw land in suburban fringe areas and developing sites for single family detached units or for multiple uses, such as combinations of single family units, multifamily apartments and cluster housing.
Based on the market segment in which the end use will likely sell, the land developer
- Acquires land
- Develops a land use and traffic circulation plan
- Constructs streets, lighting, and subsurface improvements (utilities, drainage, sewage)
- The developer then subdivides individual sites, and sells smaller sites to builders and project developers.
- The developer may also retain some retail sites for later sale if the site has suitable highway frontage.
- The land developers usually stand ready to sell sites to other project developers as long as those project developers abide by the required development controls. These controls usually include construction of buildings of adequate quality, maintenance, landscaping, and so on. These controls are usually specified in deed restrictions and/or provisions in an agreement governing the operation of a business park owner’s association.
Important note: Land developers and builders or project developers may or may not be the same entities.
Many land development firms usually exist in a given urban market.
- They enter the market for raw land by contacting landowners or land brokers and obtaining information on tracts of land available for sale.
- These developers then engage consultants to conduct market studies to assess the demand for end use that would ultimately be developed and price ranges for each use.
- The developer then completes a preliminary land plan, estimates the land development cost, and analyzes whether the tract can be purchased and developed profitably.
In many cases the developer is more of a facilitator of the development process than a firm that undertakes all necessary functions in the land development process. Many functions may be done by consulting firms (land planners, civil engineers, and landscape architects) and contractors (roads and utility construction companies). In these instances, the developer owns the land, obtains the necessary financing, and implements the overall development plan, but may not employ a staff that is directly involved in construction or design. The developer must also interact with public sector officials in obtaining various project approvals and changes in zoning when necessary, and then market sites to project developers and/or builders.
The land development process:
- Acquisition of land – use of the option contract
The developer usually negotiates an option contract because it takes time to accomplish various tasks and activities prior to the decision to actually purchase the land. Some of these activities are:
Site inspection, preliminary market study, preliminary cost estimates, soil studies, engineering, feasibility, appraisal, and design strategy, bidding and/or negotiating with contractors, plan for public approvals, plan for financing.
Option periods can be very short (one month for small residential land development) or as long as 3 years or more (regional shopping centers)
- Financing and development
When financing the land acquisition and development process, a number of structures may be available to the developer.
- The developer may purchase the land for cash. The developer may then obtain a loan for the cost of improvements and interest carry.
- The developer may purchase the land by making a down payment only. The seller finances all or a portion of the land sale by taking back a purchase-money mortgage from the developer. The developer then acquires a loan for improvements only. The seller of the land (mortgagee) agrees to subordinate the lien represented by the purchase-money mortgage to the development loan, and the developer repays the sellers’ mortgage from funds as parcels are sold and after payments on the development loan are made.
- The developer purchases the land by making a down payment and obtaining one loan based on a percentage of the appraised value of land plus improvements. The funds pay off the seller and construction improvements.
An example showing the possible land development process in Haryana, India:
|Land Development process in Haryana|
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