{"id":5201,"date":"2026-05-04T11:20:00","date_gmt":"2026-05-04T11:20:00","guid":{"rendered":"https:\/\/tiagorcorreia.com\/tmp-en-4654\/"},"modified":"2026-07-03T18:17:24","modified_gmt":"2026-07-03T18:17:24","slug":"irr-roi-real-estate-development","status":"publish","type":"post","link":"https:\/\/tiagorcorreia.com\/en\/irr-roi-real-estate-development\/","title":{"rendered":"IRR and ROI in real estate development: how to assess a project’s profitability"},"content":{"rendered":"
Investment<\/strong><\/span>3 min read<\/span>Updated June 2026<\/span><\/div>\n

IRR and ROI: the metrics that decide a project<\/h3>\n

In real estate development, the \u201cprice per square metre\u201d is not enough to assess an operation. The Internal Rate of Return (IRR) and the Return on Investment (ROI) are the two reference metrics: ROI measures the total gain on the capital invested; the IRR incorporates the time factor, indicating the annualised return over the project\u2019s cycle \u2014 a distinction that allows the viability of the investment to be assessed rigorously.<\/p>\n

A simple example: two projects with the same 30% ROI can have very different real returns if one completes in two years and the other in four. Permitting time, construction pace and sales pace enter the calculation directly \u2014 which is why the management of the planning process has a direct effect on the operation\u2019s financial result.<\/p>\n

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\u201cA rigorous architectural design is not a cost \u2014 it is the variable with most influence on the IRR: less approval time, fewer errors on site and a product designed for the right market.\u201d<\/h2>\n

Tiago R. Correia<\/h3>\n

Architect<\/p><\/blockquote>\n<\/div>\n

A serious return calculation starts before the land is bought: the maximum building capacity allowed by the PDM, realistic construction costs per typology, municipal fees and land cessions, likely approval timelines and conservative sales scenarios. It is this groundwork \u2014 the feasibility study \u2014 that allows the asset price to be negotiated with data instead of optimism.<\/p>\n

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New housing construction costs rose 5.8% year-on-year in March 2026 \u2014 with labour up 8.2%. No profitability model survives outdated costs.<\/p>\n

Source: INE \u2014 New Housing Construction Cost Index, March 2026<\/a><\/cite><\/p><\/blockquote>\n

How to improve a project\u2019s IRR<\/h3>\n
\nIRRreal profitability
\n1 \u00b7 BUY WELLfeasibility verified before buying
\n2 \u00b7 PERMIT FASTcomplete application at first submission
\n3 \u00b7 BUILD WITHOUT SURPRISESdetailed execution, accurate quantities
\n4 \u00b7 SELL TO THE RIGHT SEGMENTproduct for real demand<\/p>\n<\/div>\n

Four levers, one number: in all of them, design quality is the common variable.<\/p>\n

There are four main levers to improve the real return of a development: buying well (with verified feasibility), permitting fast (a complete application at first submission), building without surprises (a detailed execution design and accurate quantities) and selling to the right segment (product designed for the area\u2019s real demand). In all of them, the quality of the architectural design is decisive.<\/p>\n