• Nov 21, 2023
  • 7 min read

The Advantages of Investing in Property Development Companies

  • Nov 21, 2023
  • 7 min read

The Advantages of Investing in Property Development Companies

In the last few years, investing in property development companies has been of increasing interest in the international investment market. There are sound reasons for this, which means that such investing should be reflected in an effective and viable investment portfolio strategy. Let us look at this in more detail.

Stable Income Growth

Even 7 years ago, the majority of investorspreferred to have passive income through share ownership, along with bank deposits,then speculation in cryptocurrency, as well as through lending and leasingdeals.

More recently however returns on financialinvestments have declined, as is particularly the case with bank deposits. Atthe same time, the average yield on leasing of purchased property is just 3-4% per year across Europe.

Compare this with property developmentprojects bringing in 7-12% per annum. With this level being above the rate ofinflation, it protects your net worth and allows you to generate real profits.Different property development projects have varying features, and the cleverinvestor can select their preference for the frequency of income payments.

Investment Perspective

Many investors consider investing in buyingreal estate. It is important to note that the construction sector is currentlyundergoing significant changes.

Property developers have to carefullybalance several different areas: investment, construction processes, modernbuilding methods and technologies, and their marketing. In the past, developersmight have concentrated on one or some of these areas. Successful companies arenow more likely to combine all of these within the one organization. Inparallel, they are obtaining all the different types of permits and permissionsand complying with building control to assure high standards across all thecompany’s departments. It is therefore worth checking, when considering aninvestment in a property development company, that they have the latest inprofessional management to offer a “one-stop-shop” to ensure high levels ofprofessional management of your real estate investments.

Successfully completed development projectstypically lead to an increase in the value of the company's assets and, as aresult, to an increase in the value of investors' investments.

High level of reliability

Compared to investments in shares andcryptocurrency, which have the potential of high profitability but alsovolatility, investments in development projects are more likely to beconservative, lower risk investment options.

At the same time, also having asufficiently high level of income, when putting together (or updating) your capitalinvestment portfolio, investments in appropriate property development companiescan provide for quite secure levels of growth in your wealth. Many investmentprofessionals regard such investments as providing a spread of risk/reward and thepotential high level of return means a significant proportion of the assetportfolio should be in this category.

Each specific project will have its owninherent level of return on investment. However, any investor may experience achange in their circumstances meaning that they need to withdraw from aparticular investment. A property development company with a sufficientlystable financial base can cope with such withdrawals. This is an importantfeature to look for.

Transparency and control

Investing always involves certain risks.When you invest in a company’s shares, the lucky ones can see a massive return,and the unlucky ones lose their investment entirely. Once they have made theirinvestment choice, the investor has little influence over the change in valueof their holding, which depends on the economy and the specific market as wellas the company’s management.

Unlike investing in shares and investmentfunds, participation in development projects can allow for more direct controlover projects and investments. An investor can influence such indicators in theactivities of developers as the target orientation of payments, the cost persquare meter, the pace of sales and much more. This is a significant advantagefor potential investors.

Social Engagement

In addition to the above benefits,investments in development projects carry another, indirect, and importantadvantage - the opportunity to realize an urgent human need:  social inclusion.

Participating in a development company’sprojects directly leads to the creation of new jobs, development ofinfrastructure and many socially significant facilities. This means that theinvestor is directly involved in positively impacting the local community, business,and quality of life in the area. The investor therefore becomes an activeparticipant in large-scale positive transformations, while receiving stablepassive income.

Along with the benefits of investing indevelopment projects, it is worth noting that investments in developmentcompanies also carry the possibility of losses associated with marketfluctuations, unsuccessful projects, legal and regulatory risks, etc.

Therefore, when choosing a developmentcompany or project, it is important to conduct thorough research and evaluatethe potential risks before investing.

It is worth conducting a thorough check of thedeveloper’s reputation, project track record and their credit history, and thelevel of trust in this brand in order to make the most informed and correctdecision.