A new study has found that COVID-19 is creating the most competitive building and renovation environment since the global financial crisis (GFC).
Marty Sadlier, Director of MCG Quantity Surveyors, said his recent analysis of construction contracts prompted a survey of builders which revealed most have begun dramatically reducing quotes to secure work.
“We believe COVID-19 has opened a window of opportunity for property owners to make substantial savings on building costs, but it has the potential to close just as quickly, so you must stay on your toes,” Mr Sadlier said.
Mr Sadlier has noted the dramatic fall in builders’ quote figures over the past month and said it is becoming increasingly difficult to justify just how low builders are quoting.
“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 $2.5 million, and our QS assessment says it should be $2.8 million.”
“It’s fair to say that if you had a building contract priced and quoted 12-months ago and then had that same contract priced today, the 2020 amount to build would be much less.”
Mr Sadlier said the survey results show that property owners that are ready to seek a quote from a builder have been handed a ‘golden opportunity to get maximum construction bang for their buck’.
Nine builders with experience in projects from large scale commercial and residential ventures through to new home builds and renovations responded to the survey.
“Despite the diversity of projects, their answers revealed the whole environment has become hyper-competitive, very quickly,” Mr Sadlier said.
It revealed four elements to the drop in quoted costs:
1. Workflow has rapidly declined
Mr Sadlier said around half of the builders have seen their work pipeline slow or halt.
“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.”
According to Mr Sadlier, even builders looking after mum-and-dad home projects had found their work drying up.
“When owners are out of work, finance becomes a major headache, and some have put a stop to builds that are already underway. This has seen a rising number of builders finding themselves back on the market,” he said.
2. Margins are being cut
Mr Sadlier said builders are now willing to sacrifice profit margins in order to keep their business operating.
“In the current environment, builders are looking to simply keep going in anticipation of better days, and many are willing to ‘work for free’ in order to keep the doors open,” he said.
“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.”
3. Subcontractor rates have plummeted
Mr Sadlier said subcontractors were slashing their hourly rates to keep jobs.
“All nine builders said their subcontractors are becoming hyper-competitive,” he detailed.
“We have never seen an environment like this where highly-skilled and sought-after tradesman were hungry for work.”
“It’s no longer, ‘Can I find a tiler?’ because they’re all booked out. Now you have your pick of every tiler in the country,” he stated.
Mr Sadlier noted that subcontractors who are already on the builder’s books are cutting their rates to stay in with their head contractors, while new subcontractors are increasingly making contact looking for work.
“This has been exacerbated by the shutdown of major projects where subcontractors thought they were locked in with employment for the next year or two. Many of these jobs have been shuttered and there’s now a flood of ‘subbies’ looking for employment,” he said.
“This means that head contractors are able to secure subcontractors at extremely competitive rates, and those savings are being passed on to customers through lower quotes in an attempt to win work.”
4. Cheaper materials
Mr Sadlier said certain building materials had become more affordable 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.”
“Reductions in materials prices provided yet another avenue for cutting quotes,” he said.
A “GFC setting”
Mr Sadlier said the current environment bore similarities to what he saw during the GFC apart from one major difference.
“During the GFC it was difficult to determine how long it would take for confidence to return and the fallout ran for many years afterward,” he said.
“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.”
