To build or to buy, that is the question.
Category Newsletter: Lead Article
It's a question that property professionals are often asked: Would it not be more cost effective to build a residential property.
Steven van Rooyan, principal at Leapfrog Milnerton, says it is one that comes up particularly when people see a problem they like but is beyond their budget, or when they are unwilling to compromise on what they want in a property. "As with almost all considerations related to property, the answer is mostly a case of the combination of personal needs and preferences, as well as budget," he says.
Preferences aside, what is the deal with the cost then. We consulted Guillaume Cillié, a professional quantity surveyor and member at CAQS Quantity Surveyors in Cape Town, to shed light on whether it is more cost effective to build a residential property or purchase an existing structure. "Unfortunately there is not a simple "yes" or "no" answer to the question, but it does pay to be aware of all the cost of building in order to make a more informed decision," he believes.
How are building costs determined?
Floor area is typically the main cost factor in a residential building. As the floor area increases, so do all other costs. Building a 200m2 property is going to require less labour and less materials than a 800m2 property, just by virtue of the fact that it is smaller.
"Naturally size influences price but layout too can affect costs if, for instance, the site has to be excavated before building can commence," Cillié points out.
Other cost factors include height between the floor and ceiling, roof type, and finishes, though the latter tends to be an area where cost savings are very possible as personal preferences mostly drive cost here.
How is the final cost per square metre determined?
The equation is the sum of the contractor overheads (site supervision, fuel, transport, equipment) plus building costs (material, labour, waste and profit) plus professional fees plus VAT divided by the construction area.
It's important to distinguish between the cost of construction and the cost of the finishing touches. "While both form part of the cost, the price of the 'shell' is typically determined by the design while the finishing touches are heavily influenced by personal taste," Cillié points out.
What are some of the questions people looking to build a residential property should ask of their quantity surveyor?
How much is this project going to cost
How can we reduce the cost: The goal should always be to get the most value for money. "There is nothing wrong with asking your quantity surveyor where and how you can best optimise your building budget," Cillie believes.
How long is this project going to take: Building projects are, unfortunately, infamous for running over time. "Time is money in a building project, which is why you want to have clarity on how long your residential building project is going to take so that the various parties can be held accountable and expectations managed," Cillié
What is the expected cash flow: The quantity surveyor is usually responsible for paying the construction company, which means they are in charge of cash flow. Cillié explains that payments are usually made monthly, though in some cases it might be 30% upfront, 30% at halfway and the balance upon completion. Make sure you're clear on how the cash flow will be managed.
How are the costs of the quantity surveyor calculated and what does it include: The quantity surveyor is also a service provider and should not have a problem disclosing how their fees are calculated.
What kind of building contract is put in place: Make very sure a building contract is in place and that you understand and are comfortable with it. "Insist that your quantity surveyor explains the in's and out's of the contract if necessary," Cillié believes.
Beware, the unexpected costs!
A big part of the role of a quantity surveyor on a residential building project is to ensure that unexpected costs don't crop up. "Our role is to determine and manage the budget as efficiently as possible. We aim to ensure maximum value at minimum cost," Cillié highlights.
In most cases, major changes to the overall cost of the project can be attributed to changes to the specifications of the finishes and the design by the client. Cillié explains that it's about being transparent about your needs and your budget, and in turn the quantity surveyor will be realistic about what is possible within your budget.
It does occasionally happen that there is a major change in the cost of materials during the construction period that may influence the cost, but a good quantity surveyor would have made provision for some fluctuations.
Author: Leapfrog Property Group
