The two main areas of any development appraisal in which any variation could have a significant impact on profitability are;
Construction & Sale Prices
With low acquisition and construction costs and an attractive cash flow profile, this project is disproportionately profitable when compared to other worldwide projects and therefore produces a return on capital in excess of normal international development profit margins.
Developments within the UK would generally produce a return on costs between 15-20%. Whilst a higher return, normally 20-25%, might be expected from overseas development to compensate for the additional issues involved. This project is showing returns significantly in excess of this margin.
As a result there is not the usual high degree of sensitivity to these variable risk factors. Nevertheless the methodology used in the management of this project is designed to apply the same tightly controlled structure which should apply to any project with a rigorous approach to maximising value for money under the construction contract and an ongoing assessment and adaptation of the product to the sales market.
The construction contract will be awarded as a result of a competitive tendering process. The tender will be based on a detailed design and specification document but the contract will nevertheless be based on a fixed price design and build format to enable contractors to produce the most efficient construction costings and to offload all construction cost implications and risks onto the contractor.
The advantage when undertaking cost analysis in Dubai is that there are many similar construction contracts being awarded for buildings of all types and sizes due to the current level of construction activity in the region. Blair Anderson, being active in the Dubai market, is fully aware of the current cost and pricing levels for all construction elements.
The costs of construction in our feasibility study have been projected in line with current contract costs for property at this market level which can range between £60 - £100 psf depending on the actual finished specification. This development will tend towards the mid- upper range of these build costs, finished in quality materials, with prices aimed at the premium-priced sector of the market.
We maintain awareness of the trends in specification and design and marketing prices for properties of all types throughout the region. We benefit from the ongoing advice and reports from advisors with access to their data and specialist research departments. Our sales projections are regularly updated therefore and reflect comparable evidence from current sales on similar developments.