THE EFFECT OF COST OF CONSTRUCTION AND PROPERTY DEVELOPMENT

THE EFFECT OF COST OF CONSTRUCTION AND PROPERTY DEVELOPMENT

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:

1. To identify the main effect of construction cost in Nigeria.

2. To determine the severity rank of the factors amongst clients, consultants and contractors.

3. To determine the agreement ranking factors between clients, consultants and contractors.

4. To proffer solutions on how to minimize construction cost in Nigeria.

5. To highlight the process of property development in Nigeria.

1.4RESEARCH 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:

1.Do contractors and Clients generally agree on the severity rank of the effect of construction cost in Nigeria?

2.Do you have a land property within the state?

3.What are the process adopted by you during your project development?

4.Do the cost of construction and property development stop most Nigerian from embarking on project?

5.What is the average cost for the development and construction of your property owned?