Editorial Invest in Slovakia
The zoning plan is indeed a significant factor in the investment plan in the real estate business. If a developer neglects the obligation to thoroughly study the zoning plan of the place where he wants to implement his project, it can delay him for years.
I try to write all these articles about how we analyze investment plans in a way that is easy, clear and easy to read. My aim is not to quote definitions from Wikipedia or other sources.
The important thing for me is that anyone understands what a given investment opportunity has to chew through to maximize the prerequisite for a successful project.
Spatial plans have different stages. I want to address the most common one that we deal with in due diligence of investment plans - and that is the spatial plan of towns and villages.
Cities and municipalities protect their land with regulations, without which development could easily spiral out of control.
Every piece of land you drive by has a purpose in the city or town's land use plan. It can be a piece of land in the centre of a town, a grassy area, a meadow on the outskirts of a village, etc.
It is a logical and correct solution. This development control takes into account the environment, ecology, cultural values of the area, sustainable development, etc.
For any investment development project it is absolutely crucial to stick within the planning framework of municipalities and towns.
If the investment plan is not in line with the city's zoning, the investor can expect difficulties in meeting its objectives.
If a developer wants to build 500 flats in a part that is intended for recreation and sports, he may have a huge problem.
So probably my most common question is, whether the investment plan is in accordance with the town or municipality's spatial planning.
Maybe it sounds quite clear now and for real estate investors or developers as a matter of course. Well, you would be surprised how many people underestimate this important part in their investment plan.
The zoning plan is reviewed after a certain period of time in each city or town. As the situation around us evolves, so, of course, does the spatial plan. Where 50 years ago land was planned for cultivation, today houses can be built.
It's part of a progression that responds to demand from us, from the people. Over the last 40 years, trends in living and housing have changed fundamentally. The population is growing. New two or three family homes️ are now the exception and every new family wants their own home. I am not talking about industry, logistics, construction of parking lots, roads and highways.
If cities and towns did not respond to this progress with changes in zoning, we would have to adapt our lives to the way the master planners drew it up in the last century.
It is important for the investor to know that every single change like this takes time. Even a small change in the zoning plan can cost a real estate investor a year / two of absolute inactivity. And if his business plan provides for a certain time assumption, this delay can significantly affect his economic result.
There are investors who make very good money from defects in the zoning plan. But that is a separate topic for another article.
I cheer the principles of zoning because it keeps development ️ under control. Every single developer must respect these regulations. It should also be in his interest that we maintain the sustainable development of the area.
However, there are situations where it is necessary to adapt the spatial plan to the changes that are happening around us.
One example of the importance of regularly updating spatial planning:
In a certain busy area near the city centre, where the old construction of houses has already been realized, there are empty plots of land left. However, they are intended for livestock. If you happen to buy a similar plot of land in order to build a new house for your family, you have 2 options:
In some parts, the zoning plan hasn't changed in 70 years. That is why it is really important to update the spatial plan under the influence of the changes that are happening around us.
We went over why it's important to be consistent with zoning with your investment plans.
If fail to comply with zoning regulations, you could jeopardize the entire real estate project!
Next time we will write down that every investment plan needs to allow for the time frame, which is defined in the business plan of the project. Percentage return on investment (ROI) is an important metric. It tells us how much return we can get from a given investment. But it really makes a big difference if we get a 30% or 40% ROI within 3 or 10 years.
Fingers crossed for everyone on their passive income journey...
