Construction companies vs. property developers

Construction companies and property developers are two distinct types of real estate businesses, albeit with some overlap in their functions. In simple terms, construction companies build properties while developers handle the financial and planning aspects of real estate projects. But in reality, the line between these two industries is more nuanced. In this article, we’ll look at definitions of each, how to start each type of business, their major differences and similarities, and other details to clarify their unique roles in the real estate ecosystem.

Table of Contents

What is a construction company?

A construction company or contractor specialises in building residential, commercial and industrial structures. Their services include site preparation, material procurement, supplying labour, and completing projects per design plans and codes. Reputable construction firms are licensed, insured and bonded and have strong project management skills to deliver quality outcomes on time and on budget. Many focus on specific niches like highways, high-rises, custom homes etc.

To launch a construction firm, founders must obtain proper business licences and insurance, hire experienced staff, invest in equipment and tools, find funding, establish safety protocols, qualify for bidding on projects, build a strong network and access training to develop the wide range of skills this business demands. Effective branding and marketing is also crucial for growth.

What is a property developer?

A property developer conceives and oversees real estate projects from start to finish. Key tasks include conducting feasibility studies, choosing sites, designing projects, obtaining permits, securing financing, hiring contractors, overseeing construction, and completing sales or leasing. Rather than building themselves, developers coordinate the entire process across planning, financing, construction, marketing and sales.

The main requirements to become a developer are access to capital, networking skills, financial and legal knowledge, analytical abilities, project management skills, and tenacity to see complex projects through. Developing a specialty such as affordable housing or malls helps. Gaining education in real estate, finance and planning prepares individuals well for this career path.

Differences

While construction firms and developers work closely together, some key differences set them apart:

Developers conceive and manage projects; contractors execute the physical construction.
Contractors require trade skills and tools to build; developers need financial resources and business expertise to orchestrate real estate deals.
Contractors earn income by charging for labour, materials and expertise. Developers profit by adding value and selling or leasing completed projects.
Construction firms manage risks like worker safety, materials costs and timelines. Developers face risks in securing financing, permitting, market fluctuations and more.
Contractors need to be competent builders. Developers must be shrewd business strategists and coordinators.

Similarities

Despite their distinct roles, construction companies and developers share some common attributes including:

Both are integral to the real estate development process.
Success depends heavily on general economic conditions.
Establishing trust and strong working relationships with each other is vital.
In-depth knowledge of building practices, codes and regulations is crucial.
Risk management abilities are equally critical for both.
They rely on contractual agreements with subcontractors, vendors, investors etc.
Reputation and referrals impact opportunities for future projects.

Construction companies build structures. Developers align money, permits, contractors and more to make building happen. Though unique in their capabilities, both are essential contributors in creating the places where we live, work and play. Understanding their distinct but complementary roles provides valuable perspective on the real estate development ecosystem.

FAQs

What types of insurance do construction companies need?

Common policies include general liability, worker’s compensation, builder’s risk and commercial auto insurance.

What educational background is best for a property developer?

Degrees in real estate, urban planning, finance, marketing, architecture or engineering provide a solid base.

Do developers and contractors sign contracts with each other?

Yes, developers and their chosen general contractors sign detailed construction contracts.

What are the most common problems faced by construction companies?

Cost overruns, schedule delays, safety issues, insufficient skills, poor communication and disputes with owners often cause problems.

How do property developers find financing for projects?

They use private funds, partnerships, bank loans, or approach hard money lenders, investors and real estate investment trusts.

Can a construction company also act as a property developer?

Yes, many larger construction firms also have in-house development arms for undertaking projects.

What key skills do both roles require?

Leadership, problem-solving, attention to detail, organisation, communication, negotiation and analytical thinking.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at [email protected]

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Upasana Mandhata

Upasana Mandhata, currently in her final year of Law, is pursuing a BA LLB Degree at VIT University Chennai. Her interest in content creation dates back to her school and college years when she discovered a writing passion. Drawing from personal experiences, her writing style has been shaped by her journey and encounters. She enjoys experimenting with new recipes, painting, or swimming while clocking out of work time.