Rising Building Costs and its Play in the Market

Over recent months the supply of a number of building materials has become limited. Supply chain issues have led to a rapid and significant increase in the cost to undertake building work on new and existing residential dwellings.

A ‘perfect storm’ is brewing and the following effects are being seen across the country, with some states and regions being more significantly impacted than others.
A surge in demand for new products due to Home Builder Grant and First Home Buyer incentive, relaxed mortgage lending, historically low-interest rates, early access to superannuation, together with natural disaster events and supply chain issues due to COVID has led to the crisis.

There are a number of flow-on effects that our valuation team have been reporting, these include;

  • Strain being placed on many builders who may be honouring contracts signed a number of months ago. We have already seen a number of construction companies go out of business in recent months, which would be in part due to the ongoing shortages.
  • Where builders have recognised that honouring a contract would place them in a position where operating at a loss, contracts have been cancelled.
  • Many builders are issuing variations to allow for escalation in costs. This creates pressure on borrowers, particularly in situations where the loan to valuation ratios are high.
  • Many contracts are now including contingency allowances and additional special conditions.
  • An increased number of contracts with a Cost-Plus contract structure.
  • Front-end loading of progress payment schedule within the Fixed Price contract structure.
  • New contracts showing building costs over and above the anticipated build costs, where builders are speculating as to where prices may lead over the coming months.

Our experienced team of valuers are cautiously observing the rapidly evolving situation, great care is taken when undertaking our valuations to be providing the most up-to-date information at the date of valuation.

Keeping up to date with industry trends and the impact that these issues can have on property prices is all part of the job. We understand that our clients rely on our valuations for their own decision certainty. Acumentis are dedicated to providing high-quality reports to our clients in these unprecedented times.

Laura Taylor
Director – Compliance, Training & Standards
— Brisbane
CPV
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