Unlike other industries, Real Estate Industry is extremely challenging as it involves exceedingly greater risks due to involvement of exorbitantly large capital, unstable demand-supply, and lesser chances of amendments as per the clientele’s requirements.
The amount of risk involved in a particular project depends upon the project type and the stage of development.
The Project Type can be broadly classified into-
And, there are primarily three Stages of Development-
- Pre-Development Stage
- Construction Stage
- Operation Stage
Risks & Milestones Associated with ‘Built-to-Suit’ Project Type
In the category of Built-to-Suit, the builder/developer seeks a long-term credit occupant for the property, and gets the construction done as per the occupier’s requirement. This kind of retail project type involves comparatively lesser risks during all the development stages since the buyer and his requirements are pre-identified. Subsequently, the success rate for such projects is quite high, and favors the developer to a great extent.
Risks & Milestones Associated with ‘Speculative’ Project Type
In the case of Speculative or Spec Project, the builder/developer bases the project construction on the estimated demand of the desired property or the prevailing market trends. The risk involved in this kind of project is invariably high since both the demand and the market trends are liable to change during all the three stages of development. Following which, the developer is at a much higher risk whereas the situation is a lot different if the potential buyers are identified in advance that further ensures business profit to the developers.
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