The purpose of a Viability Study for the development of a property is to give advice on the "optimum" way of development and the degree of viability of the proposed
development.
The "optimum" development depends on the physical and legal characteristics of the property and on the general and the special economic conditions prevailing in the property market and the market in general. Physical characteristics are location, shape, size, accessibility, fertility of the soil, nature and age of buildings, whereas legal characteristics include the permitted land uses, density and coverage ratios, street widening schemes, planning restrictions, and others.
Economic conditions are affected by the condition of the general economy, as well as the existing supply and demand in the property market. A Viability Study provides a detailed analysis of all the above, and considers the potentialities of the property, along with existing alternative uses, or combination of uses. Then, the Viability Study arrives at the "optimum" solution which, after a detailed estimate of the market value of the proposed development and the development costs, determines the "Developer's Profit", which reflects the degree of viability of the Project. Furthermore, the Viability Study estimates the expected annual income from the proposed development, which is expressed as a percentage of Return on Capital (Yield).
The Viability Study should normally precede the design stage, which should be prepared after the nature and way of proposed development are decided and the degree of economic viability is known. The preparation of a Viability Study for a proposed Development is essential in order to inform the owner on the expected profit from the proposed development and on the potential risks. This need becomes imperative, because of the adverse economic conditions, but also because of the fact that the strong competition among developers, limits profit margins dramatically and does no longer permit any mistakes in making a decision.