Building costs now cheaper — until when?

By Gerv Tacadena | 15 May 2020

Property owners are able to take advantage of cheaper building costs amid the COVID-19 outbreak, according to a study by MCG Quantity Surveyors.

Marty Sadlier, director at MCG Quantity Surveyors, said the building industry has become very competitive due to the economic impact of the outbreak.

"We are working with builders now where we simply can't get to their costs under the usual analysis. For example, we have a builder constructing a residential unit development for $2.5m, and our QS assessment says it should be $2.8m," he said.

Sadlier said the current situation in the building industry is similar to what happened during the global financial crisis. However, property owners should take advantage of the situation as quickly as possible, as recovery might just be around the corner.

"With the current crisis, it's more likely that relaxation of restrictions and perhaps a medical solution will boost confidence quickly. This says to us that the window of opportunity for owners to benefit from low building costs is limited," he said. "If you're planning to sign up a builder, now is the time to do it. You have their attention 100%, and they're not trading your job off against another potential client."

Also read: Support for landlords during COVID-19

The study found four factors that have influenced the drop in quoted cost: a decline in workflow, reduced margins, plummeting subcontractor rates, and cheaper materials.

Sadlier said roughly half of the builders have seen a slowdown in incoming work.

"While some have projects locked in for the rest of 2020, four of the nine had projects nearing completion and they're now struggling to secure new work. Some have also had to halt work due to social isolation rules," he said.

The most affected are builders who target mum-and-dad investors. Sadlier said the outbreak has resulted in a dent to the personal finances of many property owners, delaying their plans for any possible building projects.

Given the limited work in the pipeline, builders have become more willing to sacrifice profit margins.

"This was made most apparent given seven of the nine I surveyed confirmed they were planning to, or had already, cut their margins in order to win work. Despite this, some were already losing work to others quoting at below cost price," Sadlier said.

Many subcontractors have also decided to slash their hourly rates as they try to secure their jobs. Sadlier said this has been worsened by the shutdown of major projects.

"This means that head contractors are able to secure subcontractors at extremely competitive rates, and those saving are being passed on to customers through lower quotes in an attempt to win work," Sadlier said.

Contributing to the lower building costs are materials that have become cheaper and easier to source.

"The general consensus is that for staples such as floor coverings or brickwork, suppliers are now more competitive, but specialist items such as light fittings or imported finishes were less likely to see price drops," Sadlier said.

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