Risks And Other Considerations In Property Investment And Development
Hi Everyone
I hope your week has gone well so far.
There are many risks in property investment and development, and I will explain a few of these in this article so as to give you a better appreciation in case you are new to property investment and development.
If you are an experienced property investor you will already know all about these risks and maybe a few more risks as well from your own experience.
Lets get started:
Generally the risks are fairly similar and common to all countries, however in some cases there are extreme weather or climatic conditions that dictate the measures you must take to protect your property investment.
What I have in mind here is locations that are subject to enormous effects of adverse weather and sometimes seasonal climatic conditions.
So the first consideration is Where Is The Site or Property itelf, where is it located?
You can reduce your risk by choosing to locate your building or site in areas that are not subject to the following major climatic or natural features.
Earthquake Zones
An example would be earthquake zones, where the design and construction of buildings and all strmust take account of the likelihood of such an earth tremor or earthquake. You only have to look at the devastation recently in Turkey and Syria, where more than 50,000 people have died. Some or most of these deaths and the other injured casualties were as a result of building collapses or partial collapses. This is extremely concerning and it is no wonder that the Government there has been pursuing the developers and constructors of buildings that have collapsed.
What are the requirements of the building codes in each country and were these conformed to.
Some buildings in this earthquake zone did not collapse, so it is fairly clear that the effects of the earthquake were resistible, since otherwise why were all the buildings not destroyed, not some of them?
There will clearly have to be a detailed investigation into what happened exactly and why this occurred, and was it avoidable. If there were errors of design or implementation or briefing, ie was the remit clear for the designers and constructors, then who was to blame for the multiple tragedies that occurred across the whole region in two countries Turkey and Syria.
In 2005 there was a Tsunami, ie a massive tidal waves which spread out from the location of a massive underwater earthquake in the Far East, so that thre was widespread flooding and destruction as a result of this one off event.
Areas Historically Subject to Hurricanes, Typhoons, Tornadoes
The building codes normally take account of the wind loadings and forces to be resisted and may specify the construction method and or materials that are required in such areas. Thus owners, designers and constructors are clear on what they have to provide. Each of these parties must fulfil their role so as to provide a robust building or construction that is fit for its purpose of protection from the elements and structural stability for the design life of the building or structure.
Usually there is an inspection process associated with the sign-off of the design and the construction before a certificate of occupancy may be issued.
Landslides & Avalanches
In certain mountainous areas there are high risks of landslides and avalanches, which may be caused by structural defects or erosion in rock formations, or by snowfall which has accumulated, and may be dsilodged by even such relatively minir things as sound or vibration.
The effects of such avalanches or Landslides can be catastrophic on any humans, animals, wildlife and buildings that may be i
Floods
Is the site in a flood zone of a river or from the sea?
If you are planning to construct in a flood zone then you may be restricted in what you can do. For example in the UK you cannot provide residential space on a ground floor in areas susceptible to flooding. Obviously this is so that there is no danger of drowning for ground floor inhabitants
When you see what the effects of flooding are on a residential home, you can appreciate just how devastating the effects can be.
You may be unable to obtain buildings insurance unless you demonstrate how you have address the likelihood and possible effects of flooding on a building.
Flooding associated with a tsunami in coastal areas swept away whole communities and more than 200,000 people died across the whole affected area to give an idea of the devastating power of natural phonomena.
The effects of water and saturated soils can make the soil unstable so that it can become like a slurry and no longer load bearing, which can be extremely serious.
Volcanoes
There are many examples of the effects of eruption of volcanoes in different parts of the world. Usually people do not build in an area affected by eruptions but sometimes nature catches the inhabitants out and pumps out ashand toxic gases as well as molten lava, the effects of which can spread many miles, especially if the ash is discharged into the atmosphere and distributed by winds. Although it happened a long time ago Pompei is the example that springs to mind of a society destroyed by the effects of a volanic eruption.
Soil Conditions
Some soil conditions are not suitable for development of normal buildings and special designs may be needed to overcome the effects of some subsoil conditions. Some soils contain chemicals which may be natural or a s a result of previous development and corrosive aggressive conditions may need to be specially treated, or removed entirely.
The foundation designs must be suitable for the load bearing capacity of the soils, and sometimes different forms of construction may be designed to overcome shortcomings in load bearing capacity.
Piled foundations may be required in order to distribute loads to more capable and resilient rock at depth.
Other raft type of foundations are designed to spread loads widely across a building area.
Design of bridges for railways or roads must take account of all the soil and climatic conditions, and also allow for movements owing to temperature variations. The effects of getting this sort of design wrong can be catastrophic as seen in even recent examples of bridge collapses. This is the sort of wrong side failure that is avoidable.
Designs must be checked and verified and then independently checked by another un related design consultant to ensure they are suitable for the design purpose with sufficient Factors of Safety built in or allowed before they are brought into service.
Imagine the effect if the design of the Severn Bridge in the UK, a long suspension bridge over a wide estuary with extremely difficult tidal conditions and high winds were found to be inadequate.
The design must be tested in theory and then using models, before the final design for construction is allowed to proceed. Then during and after construction there is close quality control to ensure there is no possibility of failure with the risk of loss of life.
Reclaimed Land
There are some man made islands built off the UAE at Dubai using soil compaction techniques which have been specially designed so that they are stable and durable even though they are in the sea effectively.
The above are the headline risks.
Party Wall Conditions
Apart from that there may be many other local risks, such as those associate with party wall conditions and boundaries between properties. Damage to adjacent properties must not be allowed to occur, therefore proposed designs and any effects must be agreed between representatives of the adjacent owners.
Utilities
The impact of existing utility services such as water gas electricity and drainage on the proposed development and what diversions or terminations may be required.
Some of these diversions can be major and can take months or years even to design and implement, and so they can be extremely costly. For example to move an electricty supply pylon on the National Grid may cost in the region of 500k GBP and have a 2 year lead in time, even if it were to be agreed to be feasible and able to be implemented.
Transport Systems Such As Rail Or Underground
Developing adjacent to rail or underground systems brings additional risks and many constraints on designs, construction methodology and timescales for implementation, possibly even having to be carried out when trains are not running, and in a pre-booked possession of the line which may take more than a year to book in advance..
To try to imagine the sort of risk, imagine the designers of the Crossrail undergound railway system which crosses Central London from East To West, under some of the most expensive real estate in the world, and the challenges of ensuring that despite the tunnelling for the rail bores and vent shafts, that there are no adverse effects on adjacent real estate (foundations are located above the railway). What an enormous achievement for those designers and constructors that there was no damage recorded whatsoever in a massive engineering scheme, no wonder that it took around 3 decades to complete.
Not only the civil and structural engineering challenges but the challenges of mechanical and electrical supplies, power and lighting, and fire protection systems such as sprinklers and smoke extract systems. Last but by no means least, coordinating with and synchronising several different railway signalling systems and ensuring there are no wrong side failures before and during test and commissioning before allowing the line(s) to be brought into service.
Demolitions
Some buildings may have asbestos built into their fabric, and so the measures needed to take out such dangerous material is extremely tightly controlled so there is no possibility of further contamination.
Material from the demolition may need to be taken away by licensed professionals to specially prepared disposal points, which are likely to be very dangerous.
Envionmental Considerations
An environmental impact study is usually required before any significant development of an area of undeveloped land may be allowed by the Planning authorities.
Town And Country Planning Controls
The area will be subject to National Planning Policy as well as Local Planning Policy, so the particular site will be subject to these constraints.
Areas of Green Belt and Areas Of Outstanding Natural Beauty and unlikely to be allowed to be developed without very close scrutiny of all the design proposals and careful consideration of the environmental impact.
Sustainability
A lot more thought is given these days to sustainable development and how this may be achieved, so larger schemes are especially suspectible to considerations of carbon neutrality.
Noise Pollution
Development which creates a noisy environment and which could cause pollution or adverse effects to nearby residentis are unlikely to be approved without mitigation measures being put in place. For example noise or sound attentuation fencing may be necessary along major highways or railways running near residential dwellings, or the road or rail line may be designed into a cutting to minimise the effects of noise on nearby inhabitants.
Summary
In summary there are many risks of property investment and development and if you can find a suitable property or site in the best location that you can afford, and with the least risk, that is probably the best place to start your search, rather than looking in undeveloped locations that may be subject to restrictions or risks that may be not have been fully identified.
Design and construction to the required construction or building codes ensures quality and longevity of the building or structure.
When facilities such as the Olympic Park were developed prior to the 2012 Olympics there was consideration of sustainability and the heritage use of those facilities after the Olympic Games were held and finished.
Usually there is a reason that the most expensive areas to buy property have developed to be such high value areas. An example would be central Manhatten or Central London Or Paris or any major city worldwide.
Enjoy your weekend everyone, wherever you are in the world!
Cheers
Alan
Recent Comments
7
Hello Alan.
Having had a property company abroad for the last 16 or 17 years I know only too well about the pitfalls that can go with buying property. When I first started I made some bad investments myself - not anymore.
Your points above are all good. However, the most important thing IMO is to employ your own independent lawyer to check title is 100% clear etc. You would be amazed at the number of people who don't do this. Expect many sleepless nights and headaches if you don't!
That's a promise.
Paul
See more comments
There are a lot of intricacies to have to deal with for sure, Alan!
Jeff
Hi Jeff
Fortunately most sites have only a few issues, nevertheless it is suprising that they are never the same ones, every site is different with its own peculiarities and conditions, thanks for your comment Alan.
There never seems to a dull moment in that field, Alan!
Jeff