The simultaneous actions of real estate development and real estate investment shape the movement of the real estate sector. Although the two streams are fundamentally different, they intersect in their impact on real estate valuation and market value.
Below, we explain the most important concepts and activities in each track and how they affect the sector’s movement.
What does real estate development mean?
Real estate development aims to create contemporary living spaces and cities. It is the culmination of efforts to buy vacant land, develop plans to build and develop it in line with the culture of its geographical area and identify all the materials needed to build the project, build the structure, and prepare for construction to develop modern cities. This is done in steps:
- We start by determining feasibility by hiring an experienced real estate evaluator to evaluate the market and determine the best use of the land, whether residential, commercial, or industrial.
- The developer buys the land suitable for his project and works on obtaining the necessary permits.
- The developer collaborates with architects and contractors to design and build the final real estate product.
- The developer develops an effective marketing plan to sell the developed real estate units.
What does it mean to invest in real estate?
Real estate investment involves buying, managing, selling, or renting real estate for profit. Some professional investors develop, improve, or renovate real estate to make more money from them. There are several types of real estate investment activities:
- Investors in residential units and their investment strategies vary, as some are looking for a deal to freeze their money, and those who work professionally to renovate and develop the building to increase its market value and sell it.
- Some investors buy residential real estate and turn it into income-generating real estate by renting it out and making some repairs.
- Some people prefer to invest in real estate investment funds.
Real estate investment vs. development.
Real estate investment and real estate development are the most important business fields that aim to achieve profit by owning and developing real estate. Although there are some similarities between them, there are fundamental differences in the nature of work, objectives, risks, and returns between them.
Firstly: The approach to real estate search:
A real estate evaluator looks for neglected or under-utilized real estate and prefers raw land to develop and create new projects.
The real estate investor wants to buy completely qualified real estate and prefers income-generating real estate like residential apartments or shops.
Secondly: The nature of the work:
The real estate developer is directly involved in all stages of project development, from land purchase to planning, design, construction, marketing, and sales.
The real estate investor participates in the project development stages in a limited way and focuses mainly on buying income-generating real estate or selling it to make a profit.
Third: Objectives:
The real estate developer aims to add new and different value to the real estate community by creating new projects that meet the market needs.
A real estate investor mainly aims to make a profit through buying and selling or renting properties.
Fourth: Risks and returns:
A real estate developer faces greater risks due to his direct involvement in all stages of project development, but he gets higher returns if the project is successful.
The real estate investor faces less risk due to his limited involvement in the development stages of the project, but he gets lower returns.
The relationship between investment and real estate development is both complementary and competitive, as property developers work to provide attractive opportunities for investors, while the developer and the investor may compete to buy land with a promising future to benefit from it.
What is the role of real estate valuation in development and investment?
From the above, it is clear that the developer works to create value for vacant land by transforming it into attractive projects that represent promising opportunities for investors. The investor studies the opportunities to choose the most promising ones to achieve the expected return. Here, the role of the real estate evaluator emerges, which is considered a pillar for both paths, as the real evaluator does:
- Land purchase decisions for developers:
Before starting a project, a real estate developer relies on the valuation of the land to determine whether its market value is commensurate with the expected return from the project. A real estate valuation helps the developer avoid high-risk investments.
- Determine appropriate selling prices:
Once construction is completed, Real estate valuation plays a key role in helping the developer set competitive selling prices for the units in the project. Prices set based on market value help achieve faster sales and better profit margins.
- Helping investors make wise investment decisions:
Real estate valuation gives investors the ability to evaluate different investment opportunities. A real estate evaluation report gives the investor insights into whether the price of the real estate for sale is in line with the value of the project.
In conclusion, we can say that both real estate investment and property development are important fields that offer various profit opportunities. They rely on real estate valuation to determine the most appropriate use and feasibility of the entire project.
Aain is a leading real estate valuation company that helps you evaluate your real estate and know its market value, you can contact us or request a valuation of your real estate.