The Effect Of Cost Of Construction And Property Development

Project and Seminar Material for Estate Management

Abstract

Construction cost and property development in Nigerian has turn out to be a serious issue as the cost at which material are raised to makes it difficult for a simple Nigerian man to embark on construction work or property development project. Therefore, this research work aims at discovering the effects of the cost of construction among the Nigerian citizens. And seek solution on how this cost can be reduced by a high number percentage. This research work makes use of survey design method to carry out this research work, and a total number of seventy (70) respondents where used, and the data obtained was analyze using the SPSS package.

Chapter One

1.0 Introduction

Property development is a complex activity, with a series of stages involving many actors with differing objectives, all operating within the building cycle context and its interaction with business and credit cycles. Before developers commit to acquiring land and signing a building contract, they first evaluate the market to establish a project’s viability, and secure finance and planning consents (Wilkinson & Reed, 2008).

Construction cost estimate is the amount envisaged to finish a construction work. It is the probable amount that is computed to complete a construction work. It is a prediction of the amount of a project based on available data at the time of prediction. Cost estimate was defined by Business Dictionary (2013), as an “approximation of the probable cost of a product, program, or project, computed on the basis of available information”. So the more information is provided on a project, the more the estimate tends to accuracy. It is important in many ways.

The purpose of this document is to gain insight into the nature of the property development process and cost of construction to inform a later stage of this research that will pursue greater understanding of the factors that will encourage developers to embark on dense residential and commercial developments around transit hubs in Nigeria. In this research work a brief overview of the phases of property development is provided. The initial evaluation phase is then explored in greater depth and the cost of construction.

1.1 Background of the Study

The growing need for construction of all types coupled with a tight monetary supply has provided the construction industry with a big challenge to cut cost.

According to Mendelson and Greenfield (1996) the remaining part of the twentieth century would involve corporations, institutions and government in a race to survive. The attendant dwindling economic fortune of nations economies around the World have geared up the participant in these sectors (the client in particular) to take up the challenge of ensuring efficient use of their resources to obtain value for money in terms of performance.

The total cost of construction in normal circumstances is expected to be the sum of the following cost: Materials, Labour, Site Overheads, Equipment/Plant, Head office Cost and Profit but in many parts of the world particularly in Nigeria, there are other costs to be allowed for.

These costs according to Mbachu and Nkado (2004) have obvious negative implications for the key stakeholders in particular, and the industry in general. To the client, high cost implies added costs over and above those initially agreed upon at the onset, resulting in less returns on investment. To the end user, the added costs are passed on as higher rental / lease costs or prices. To the consultants, it means inability to deliver value – for – money and could tarnish their reputation and result in loss of confidence reposed in them by clients. To the contractor, it implies loss of profit through penalties for non-completion, and negative word of mouth that could jeopardize his/her chances of winning further jobs, if at fault.

The proposed work will investigate and report the other costs to be allowed for, which are the basic factors affecting construction cost and property development in Nigeria and also proffer solutions to how construction cost can be minimized.

1.2 Statement of the Problem

The demand for more construction of all types, coupled with a tight monetary supply has provided the construction industry with a big challenge to cut costs. The problem of high contract costs of all aspects of construction is becoming obvious. Consequently, substantial increases are being observed in projects.

This substantial increase has brought about loss of client confidence in consultants, added investment risks, inability to deliver value to clients, and disinvestment in the construction industry.

1.3 Aim and Objectives of the Study

The aim of the study is to find out the effect of construction cost and property development in Nigeria and proffer solutions to how construction cost can be minimized.

The objectives of the study are as follows:

To identify the main effect of construction cost in Nigeria.
To determine the severity rank of the factors amongst clients, consultants and contractors.
To determine the agreement ranking factors between clients, consultants and contractors.
To proffer solutions on how to minimize construction cost in Nigeria.
To highlight the process of property development in Nigeria.

1.4 Research Question

In the course of this study the researcher designed some research question which will help get data for a better understanding of this project research wok, which are:

Do contractors and Clients generally agree on the severity rank of the effect of construction cost in Nigeria?
Do you have a land property within the state?
What are the process adopted by you during your project development?
Do the cost of construction and property development stop most Nigerian from embarking on project?
What is the average cost for the development and construction of your property owned?

1.5 Significance of the Study

An assessment of the study would enable Clients, Contractors and Consultants give an economic approach to construction work such that they would be able to identify the dominating factors leading to high construction cost in Nigeria and its effect on property development.

The application of the solutions proffered to minimizing construction cost would restore client’s confidence in consultants, reduce investment risks, and generally boost the viability and sustainability of the industry. The study will add to literatures on the subject matter and serve as a reference material to students and researchers who might carryout further research on this topic or related area.

1.6 Scope and Delimitations

The scope of this research is limited to identification of essential effect of cost of construction and property and proffering solutions on how to reduce construction cost in Nigeria. The study is limited to projects in the Lagos metropolis of Nigeria because there is easy access of information in the Lagos metropolis by the researcher.

Target respondents for this study are the principal actors in the construction industry namely: the Client, the Consultant and the Contractor.

1.7 Limitation of the Study

Finance, time and availability of materials were the major constraints the researcher encountered while carrying out this study.

Chapter Five

Conclusion and Recommendations

5.1 Conclusion

This study was carried out to examine the effect of cost of construction and property development in Nigeria. Conclusively, the main factor affecting cost of construction as opined by the three key players in the construction industry is cost of materials. Since Quantity Surveyors are cost experts they are in the unique position to examine these factors and take care to estimate, include contingencies in the budget, plan for, and mitigate the adverse effects of these factors on the project cost. Clients, Contractors and Consultants should give an economic approach to construction work such that they would be able to identify the dominating factors leading to high cost of construction in Nigeria and apply the proffered solutions to minimizing same so as to restore client’s confidence in consultants, reduce investment risks, and generally boost the viability and sustainability of the industry.

5.2 Recommendations

The following recommendations are deduced from this study:

Much focus should be placed on the major factors affecting construction cost in order to reduce the cost of construction cost, enhance construction performance and generate confidence within the construction industry.
Quantity Surveyors should become more alive to their responsibilities as cost experts ensuring that they make use of correct estimation methods.
There should be thorough crosschecking of estimates based on updated price information in order to avoid any wrong estimation.
Clients should clearly identify their requirements and needs, whether they are able to achieve them with their financial capability in order to reduce payment problems.
There should be proper coordination and communication among various parties working on the project in order to improve management, control problems and reduce any avoidable delay.
Contractors should come up with a clear plan and strategy before starting a project. Early project planning and scheduling of labour, equipment and cash, combined with a good bidding strategy, will help to obtain efficient work at a proper price.
Since Contractors and Consultants generally agree on the severity rank of the factors affecting construction cost, they should work together to ensure that they give the Client quality for his money without exceeding the contract sum.
All parties should take responsibility to make use of the proffered solutions to minimizing cost of construction.