property build cost rises in 2021

Property build cost rises in 2021

Anyone involved in property development/refurbishment will be well aware of the rising cost and shortage of materials this year

Items such as copper, timber and cement have all gone up between 5-15%. Steel has risen by 65%

There are many reasons for this

Brexit is a major one with supply chain delays at all the ports into Britain. This hasn’t been helped by the rise in the cost of moving shipping containers worldwide. A large amount of construction materials are moved by sea. A few months ago there was a problem in the Suez canal when a ship got stuck and prevented all movement for several weeks. Hundreds of container ships were prevented from transporting their cargoes and this has added to the supply problem.

Also there is the large amount of work going on that is fuelled by the availability of all the Government stimulus money and people rushing to take advantage of the stamp duty holiday.

HS2 has driven up the price of cement, concrete and timber. HS2 is still at the civils and enabling stages. The situation will get worse when it reaches the fit out stages. It will be the same as when Crossrail was at the fit out stage

Brexit also saw a fall in the amount of skilled tradesmen as hundreds of thousands of East European workers returned home. This had the knock on effect of causing labour costs to rise

The labour situation looks like it will soon get worse. After 30th June it is predicted that a large amount of EU workers who have not received or applied for settled status will return home

These 2 issues are of serious concern to property investors

Deals that may have stacked up 3 months ago may not be profitable in 3 months time

Property development is just like any other business

It needs to be taken seriously and your figures have to be spot on

Its always wise to take the advice of an Accountant before starting any project. A good one can give you advice on which structure to use, cashflow and tax considerations. There is no point making a nice profit on a project and then paying most of it in tax

When you are calculating the cost of a refurb nothing should be arbitrary

The progress of a project has to be measured. You cant have accurate metrics with arbitrary figures

Most developers build a contingency sum into their figures

But just having a lump sum or a percentage as your contingency may not be sufficient to get you out of trouble

It is wise to monitor trends in the construction industry, in particular material price rises and shortages and any increase in labour costs. If you don’t you may find your contingency will not cover unexpected cost increases

The best way to protect your project from unexpected cost increases is to get material and labour costs locked in at the time of signing a contract with the builder

However the builder may insist on the contract having a fluctuation clause to protect himself

There are many reasons why you should use a contract on a refurb project

As we said this is a business so don’t try to deal with the issue of build costs by cutting corners

Don’t just take the builder with the cheapest price

Sometimes A low price from a builder can be as bad as a high price Price

You may be tempted to buy the materials yourself to cut costs. Sometimes it will be a good decision but there are risks in buying materials yourself

And whatever you do NEVER think that using cheap labour is the solution

Using cheap labour is a false economy on a refurbishment project

Skilled labour isn’t cheap and cheap labour isn’t skilled

Any delay on a project will cost you money

One of the major causes of delays on a project are caused by reworks due to poor workmanship

An essential tool for delivery of any project is an Inspection and test plan

Many people underestimate the role of Quality Assurance in a project

Insisting on an ITP and QA documentation is going to eliminate waste and provide accountability

There are 3 stages of a construction project

Every experienced developer knows that you will make or break any project in the preconstruction phase

If you take your time and plan things properly at this stage, you will give yourself a head start when you get to the construction phase. You will be able to deal with any problems in a proactive manner. Without proper planning you will be forced to deal with things in a reactive manner. You will constantly be on the back foot and under pressure

To compensate for increased costs you will have to improve efficiency and production on site. Once you start the project must keep moving, you cant afford for work to stop. Remember delays will cost you money

 

We can help with all the issues mentioned above. Please see our services page for more information

Feel free to Contact us for a no obligation chat to see how we can help you

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