Real Estate developers are in a business of building good houses for people to reside and generate some profit out of the investment in return. Launch price is determined by numerous factors which adds up to come at new launch price. A new launch price estimates are acquired through revaluation of the estate to achieve the new condo price.
Once the developers build a condo or a residential home, investors find it hard to determine the condo price. They might either end up under or overestimating the condo prices which will have different implications in the real estate.
Here is how to estimate the new launch price
By adding up all expenses: land cost, construction costs, expenses and profit margin an investor arrives at launch price.
Land costs + construction costs + expenses and profit margin = launch price
As it’s in general accounting , the costs of goods sold determines the selling price of goods produced, the same way the expense incurred by the developer will determine the launch price of a condo
The land is the most vital and expensive factor of production in every sector. Developers need land to stand their property. investors invest their money by buying the land at a cost which is included in the estimation of the launch price. This ensures the investor come at a condo price that will recover land acquisition expenses.
In case the cost of land rise significantly in between tender award and launch date, the developers are allowed to revisit the cost of land and rise it for more profits. The contrary also applies when land costs lower, the developer’s profit margin as they have to deduct the change from land cost they initially acquired the land.
This includes all work and materials that will be needed in constructing condos. An architect needs to design and contractors put up the properties. They need to be paid and not just paid but well paid for them for a good job. All building costs incurred are compensated in the launch price. So incorporate this cost during the estimation of a condo price.
Other expenses and developer’s profit;
- Administrative expenses: the staffs’ salaries, overheads, and office rents.
- Sales and marketing expenses: real estate agency commissions, advertising the property for development, solicitor fees for conveyance among others.
- Finance costs: this is the interest paid to the financial institutions for funding the development.
- Profit margin: profits made by the developer by taking the risk in the development process.
When you add up all the expenses, you arrive at a new launch price which will help you in determining new condo price to avoid overvaluing or undervaluing of your real estate investment.
Cheaper or expensive launch price which is better value?
Expensive or cheap launch prices doesn’t solely mean good or bad for investors. Cheap launch price may imply that the developer was more efficient than the expensive launch prices competitors’ were.
In conclusion, the launch price estimation indicates considerations in your budget but not a determinant of the value of the property. Consider studying developer’s records of accomplishment for actual value.
The summation of incurred costs mentioned above is very vital when estimating a new condo price. If you are a new real estate investor, always consider them for your success in real estate especially in estimating new launch price for any upcoming condo.