Why Conducting a Feasibility Study is Essential for Townhouse Developments in Melbourne

A lot of investment opportunities look great on paper, but not every development is what it appears to be–especially when it's put under the microscope. So, how exactly can you tell if a townhouse development is worth your time or fraught with potential risks? The answer is a comprehensive feasibility study that analyses every fine detail.

If you’re planning to invest in a Melbourne townhouse development, trust us when we say that a feasibility study isn’t something you want to overlook. When it comes time to put the pen to paper and sign off, you’ll be very happy to have taken this extra step.

Interested to learn more Throughout this article, we’ll explain the how, the why, and give concrete examples of just how valuable a feasibility study can be!

Recent Changes to the Townhouse and Low-Rise Code

In February 2025, Victorian premier Jacinta Allen declared plans to make our state the “townhouse capital of Australia” (Source: ABC News). This statement came on the heels of the announcement of a new ‘Townhouse and Low-Rise Code’.

So, what does this all mean? These recent changes come with an ambition to fast-track the development of townhouses and higher-density properties throughout residential Melbourne and regional Victoria. More specifically, the new code covers everything from duplexes to townhouses and low-rise apartments–extending to properties that are between one to three storeys high.

Although these changes open the door to more approvals for townhouse developments, this doesn’t mean it's time to leap at the first one available. As we’ll go on to explain, careful thought and due diligence are the best ways to find an investment with real long-term value.

What is a Feasibility Study and Why Does It Matter?

A property development feasibility study is a detailed financial and strategic analysis carried out to answer one important question–is the property development project viable? In order to find the answer, this study covers all bases and spells out everything involved, from logistical aspects to financial considerations, timelines, planning approvals, and more.

A well-executed feasibility study should cover all aspects of the development process, including acquisition, planning, construction, subdivision, sales, and financial considerations. Without a feasibility study, you’re essentially flying blind and hoping that your investment will work out in the long run.

How do we know? Well, it’s because we’ve seen the long-term value of a well-planned feasibility study firsthand! As leading buyer’s advocates in Melbourne, we’ve partnered with some of the biggest brands in the business, including household names (no pun intended) like Buxton, Barry Plant, Frasers, and many more.

Is a Feasibility Study Suitable for Different Types of Investors?

It’s easy to be lured in by the prospects of a brand-new investment. The property seems good and the price sounds about right, what’s not to like? Remember, the key to genuine capital growth is to take it slow and do your due diligence.

At Property Analytics, we work with investors from all walks of life, but we always make decisions based on sourcing the right data and covering all the bases. Whether we’re working with single homes, dual occupancies, brand-new duplexes or top tier Melbourne Developer site acquisitions, we approach every opportunity with a goal to leave no stone unturned.

As you can see in one of our recent case studies, a feasibility study was not only essential, but actually the first key stage of the process.

The final result? A 43% return on Cash and a 15% Return on Capital. This was a great value buy with big profit potential–all in all, it really shows what’s possible when you do a deep dive and consider the feasibility of a project from all angles.

Acquisition: Securing the Right Property

Before you invest in a townhouse development, you’ll need to find, secure, and purchase the right piece of land. But simply buying any block won’t cut it—a lot of thought needs to be given to assess whether the site is suitable for the scale and type of development you have in mind.

Put simply, there is a lot of must-have information that you’ll need. This includes:

• Purchase price – The initial cost of the land or existing property
• Stamp duty – A major expense that varies based on purchase price and location
• Legal and conveyancing fees – Essential for handling contracts and settlement
• Due diligence costs – Site surveys, soil tests, and environmental reports to identify potential issues
• Council rates and land tax – Ongoing costs that must be considered from day one

Choosing a site without properly assessing zoning regulations, overlays, and infrastructure availability could result in delays, additional costs, or even make your project unviable.

Planning: The Strategic Foundation of Your Project

Under requirements set out by the new Townhouse and Low-Rise Code, “A council must decide whether to advertise a development proposal to neighbours and the community (notice is required for most permit applications). People may make an objection or submission to the council.” (Source: Department of Planning Victoria)

As you can see, navigating the town planning process in Melbourne is no walk in the park. Local councils often have their own specific rules and zoning requirements that dictate what can and can’t be built on a site.

This is why a feasibility study will consider the following aspects:

• Zoning and overlays – Will the townhouse development comply with council regulations?
• Permits and approvals – Planning permits, building permits, and other council approvals can take months to secure.
• Development contributions – Some councils require financial contributions towards local infrastructure and open spaces.
• Neighbour objections – Are there factors that may trigger objections and delays?

Skipping this step could leave you with a property you can’t develop as planned, forcing you to redesign or, worse, abandon your project altogether.

Construction Holding: Managing Costs During the Build

Even before construction begins, holding costs will start to accumulate. Again, it can be easy to overlook this stage, but luckily, a feasibility study gives you a detailed picture that spells out exactly what you’re in for.

Holding costs can include:

• Council rates and land tax – These apply whether the land is being used or not.
• Loan repayments and interest – If you’ve taken out a development loan, repayments kick in from the settlement.
• Insurance – Construction insurance, public liability insurance, and other necessary coverage.
• Site security and maintenance – Keeping the site secure and in good condition during the build.

The longer the construction process drags on, the more these costs pile up, so the more awareness you have of financial obligations, the better.

Subdivision: Splitting the Property for Maximum Value

Subdivision is often a key element, especially for any townhouse developments. Subdividing a property means splitting it into individual lots, each with its own title. This process increases flexibility, allowing you to sell townhouses separately or retain some for rental income.

Subdivision considerations may involve:

• Council subdivision fees – Required for legal recognition of separate titles.
• Land surveyor costs – Ensuring compliance with boundary and zoning laws.
• Utility connections – Separating water, electricity, and gas connections for each lot.
• Driveway and access requirements – Some councils have strict guidelines on shared access and parking.

Subdivision adds value but also involves costs that should be factored into your feasibility study from the start.

Sales: Turning Your Investment into Profit

Once construction is complete, the goal should be to sell (or lease) the townhouses at a profit. This phase involves marketing, real estate agent fees, and settlement costs.

Key sales expenses include:

• Marketing and advertising – Online listings, brochures, signage, and professional photography.
• Real estate agent commissions – Typically a percentage of the final sale price.
• Legal fees for contracts and settlements – Ensuring smooth transactions.

A well-planned property development feasibility study will estimate expected sales revenue based on market research, data that will help you determine if your project is financially viable.

Costs to Consider: Hidden Expenses That Add Up

In addition to the more obvious costs, a townhouse development feasibility study should account for some of the hidden expenses, such as:

• Council open space contributions – Some councils require developers to contribute towards public open spaces.
• Margin scheme tax implications – Affects how much GST you need to pay on sales.
• GST on development costs and sales – Complex calculations that impact your profit margin.
• Infrastructure levies – Additional fees for new developments in some council areas.

Failing to account for these costs can significantly impact your bottom line.

Gross Realised Value: Estimating Your Return

The Gross Realised Value (GRV) is an estimate of the total value of your development upon completion. This figure is determined by analysing comparable sales of new townhouses in the same area.

To calculate GRV, consider:

• Current market conditions – Demand for townhouses in the area.
• Comparable sales data – Recent sales prices of similar developments.
• Potential rental yields – If you plan to retain any properties for rental income.

A feasibility study should provide a conservative estimate to avoid overinflating expected profits.

Timelines: Managing the Development Schedule

A feasibility study should include a detailed project timeline, outlining key stages from acquisition to sales. As any delay can increase costs, understanding the expected timeframe is incredibly important.

Some factors that may affect timelines are:

• Planning and permit approval delays
• Construction delays due to weather, labour shortages, or material availability
• Extended sales periods if the market is slow

A realistic timeline helps you manage holding costs and ensures a smooth development process.

Equity and Debt Requirements: Understanding Your Financial Position

Developing townhouses requires significant financial resources, which are often a combination of personal equity and borrowed funds.

Key financial considerations include:

• Deposit requirements for land purchase and construction loans
• Interest rates and loan terms
• Equity contribution vs. debt funding
• Exit strategy to repay loans and realise profits

A feasibility study will outline exactly how much funding is required and where it’s coming from.

Avoid Critical Mistakes with a Property Development Feasibility Study

Foregoing a feasibility study is one of the biggest mistakes an investor can make. From hidden costs and planning hurdles to construction delays and sales risks, there’s a lot that can go wrong. A detailed feasibility study gives you the clarity and confidence needed to move forward—or walk away from a bad deal before it’s too late.

So, before you dive into a townhouse development in Melbourne, make sure you’ve done the numbers. A well-planned project is the difference between success and a costly misstep!

Put Your Best Foot Forward with Property Analytics

Operating since 2010, we are a data-driven buyer advocacy firm driven by one goal–to help our clients through well-chosen real estate investment backed by the numbers. We’re a small team of real estate analysts and buyer advocates who act with integrity. Our long-term relationships with clients are built on shared values of honesty

We work hand-in-hand with clients to help them understand what is possible with their current savings and borrowing capacity. We also know where to find profitable real estate development opportunities across Metropolitan Melbourne.

We shortlist suitable properties, conduct comprehensive project feasibilities, and negotiate purchases. Once a project is green lit, our team will manage the planning and design phase with our preferred team of professional consultants from concept all the way through to building tender docs.