In these uncertain economic times, the thought of undertaking a construction project can be daunting. Whether you are building your own home or a commercial property, there are a number of pros and cons to consider. But for a builder ready to take the plunge, this shaky economy offers plenty of rewards.
Wil Steward, of architectural firm Chalmers Gibbs, says while many costs associated with building have declined due to the global recession, a variety of factors can still affect the mid- and long-term benefits of committing to a project.
“Costs will inevitably have come down, but in a sinking economy there is always a danger, especially with small contractors, that they may lack sufficient resources to finance, manage or even complete their work,” Wil advises. “Owners might be wary of making large advance payments beyond what is normally expected for mobilisation or material orders.”
Everton Vidal, a veteran of Cayman’s construction industry with more than 25 years experience, says stamp-duty reductions, lower costs on construction materials, and contractors hungry for work have created great opportunities for potential builders. He believes now is the perfect time for cost-conscious builders to break ground.
“As the economy has slowed down, contractors have had to lower their price and be more competitive in order to get work,” Everton says. “I don’t think they’re making the big profits that they’re used to and they have to pass savings on to customers to get the jobs.”
He says those building in Cayman could benefit from the economic situation in the United States, as retailers and wholesalers of building materials are more willing than ever to lower their prices for the sake of a good deal.
However, Wil, also experienced in Cayman’s construction industry, does not agree.
He advises caution, believing that new home builders expecting to reap huge amounts of savings may not be looking at the whole picture.
“Many people embarking on building new homes may have unrealistic expectations about the possible savings. This may change if the recession deepens, and labour rates and the cost of materials lower slightly,” he says.
The difficult part, Wil adds, is estimating the global influence.
“The supply and demand curves for materials are quite complicated by international trade,” he says, pointing to steel as an example.
“Steel has experienced large fluctuations in the past 10 years due to booms in larger markets, such as China. A significant part of our material costs are in importing them here, in duty, shipping and handling. Those costs will have changed very little, making part of the cost of constructing a new building almost fixed.”
Although Wil advises new builders to tread cautiously, he believes the government’s reductions on stamp duty, and the Buyer’s Rebate Programme will have advantages for new homebuyers.
“The reduction on stamp duty by 1 to 2.5 per cent will certainly be an incentive to purchase the house lot in the short-term and longer-term incentives are in place to encourage building and development in the Sister Islands,” Wil says optimistically.
With interest rates low, those building new homes or commercial properties will save some money, even if just for the short term. But Wil believes those decreased rates may actually be a double-edged sword for commercial builders.
“Banks are less inclined to make large commercial loans at the moment, possibly due to the low rates, as well as continuing uncertainty of the global economic situation,” he says.
“We are still waiting for several large projects to move forward that require financing.”
No hard and fast data
Hard figures on raw construction costs are difficult to come by in the Cayman Islands. Contractors and builders source their materials from a variety of sources, both locally and overseas, as do consumers looking to cut costs. Exact figures are a tangle of discounted materials from the US, boosted by import duties and shipping and handling charges.
Wil recommends customers leave the sourcing of materials to contractors; if shipments from Miami are delayed, the wrong materials are shipped, or if delays occur and costs overrun, the responsibility lies with the contractor. He is hesitant to say that construction costs favour building right now, but offers the following: “Of course the quality of fixtures and finishes plays a large role in cost as does other design factors such as floor wall ratio and foundation type. My guess is that it is more expensive to build now than five years ago, but cheaper than two years ago. Although I really dislike area estimate values, CI$200 per square foot seems to be the conventional wisdom as a gross average.”
Factors to consider
Everton has worked on projects as varied as Prospect Primary School and the cinemas at Camana Bay and spent numerous years with Hadsphaltic, Arch and Godfrey and Hurlstone Construction building homes and office complexes. He says builders may find particular materials have decreased in cost, but other crucial supplies, such as local concrete blocks, have not changed.
“These factors are obstacles new builders must navigate and consider before building in the current climate, and those considering building shouldn’t expect a feast of saving,” Everton warns.
“C.L. Flowers, for example, which has a monopoly on building blocks, have not lowered their prices. As a matter of fact, a year ago there was a rise in the cost of cement blocks. The cost for a bag of cement has reduced,” he adds, “but the cost for pre-mix concrete remains the same.
“Ten years ago, low income houses used to be approximately CI$70 to CI$80 per square foot; it is now approximately CI$129 to CI$130 per square foot to build that same house.
“The cost of labour has remained roughly the same,” he estimates.
“But over the last 10 years, the price of materials has increased by 50 per cent, so I would say overall construction costs have increased by about 30 per cent.”
When asked whether it is smarter to buy right now, rather than build, Wil says, “That really depends on your goal in building.
“For pure investment purposes, there may be sellers motivated by the slow economy who are willing to sell at a loss. With new construction, although costs may appear lower, there are likely to be fewer deals, however, you may reap the benefits in appreciation over the medium term as costs go up again. If you want to build something unique and highly personal it is a good time to do it.”
For many, building a home is rarely about saving money. It is about fulfilling a dream, realising a vision and creating as perfect a living space as your budget allows. So even in these turbulent economic times, it is comforting to know that you still have an opportunity to build your dream home.