29/06/2004 - 22:00

Increased costs shave builders’ bottom line

29/06/2004 - 22:00

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Despite the continued strength of the construction industry, across-the-board cost increases in the building industry are putting pressure on many builders’ bottom line.

Despite the continued strength of the construction industry, across-the-board cost increases in the building industry are putting pressure on many builders’ bottom line.

Master Builders Association director of economics and housing Gavan Forster told WA Business News costs had increased on a range of inputs, with steel, timber, bricks and labour affected most.

“Commercial building material costs rose at a rate of between 4.5 per cent and 5.5 per cent per annum throughout most of 2003,” Mr Forster said.

“This was quite high in historical terms compared to an average of around 2 per cent in the last five years, although there has been some easing in the first few months of 2004.”

He said building material prices for the housing sector had shown a similar pattern to commercial costs.

“Tender prices have risen around 10 per cent over the same period, which indicated that labour costs have been causing considerable pressure on builders struggling to find trades,” Mr Forster said.

Pindan director of business development Scott Davidson said costs in all sectors of the construction market had risen and were eating profit margins.

“In the last six months, cost escalations in the apartment market have been more than 15 per cent, and this is affecting the feasibility of projects, especially for developers selling off the plan,” he said.

“Some developers, where possible, are trying not to pre-sell before getting an accurate building price.

“It is a fallacy that builders make money in a boom.  Profits are always far better when a boom ends.”

Doric property construction executive Keith Somers agreed that making a profit was much more difficult in an active market.

“When there is not much, or moderate activity, it is easier to predict costs,” Mr Somers said.

“In a boom market, a contract is done with set prices, however during the construction period, prices can change rapidly and a builder or developer is left out of pocket.”

Smorgon Steel executive general manager Bruce Loveday acknowledged the cost of steel had substantially increased in the past six months, but attributed the increase to an increase in production costs.

“Since March this year we have had three price increases, but this has reflected an increased price in scrap metal,” Mr Loveday said.

“The long-term average for scrap metal has been $US100 a tonne, and in March this year it was up to $US350 a tonne.

“We have put our prices up, on average, between 20 and 25 per cent since Febuary with some top-end lines between 25 and 30 per cent.”

Mr Loveday attributed the increased cost of scrap metal and steel to demand and growth in China.

“China is the world’s largest steel maker but is deficient in scrap metal, and the volume it is importing has accelerated, causing the price to accordingly accelerate,” he said.

Austral general manager Peter Scott said the price increase in bricks had not been dramatic, and was quite modest and fairly generic in relation to other products.

“The real costs have been stamp duty and government charges,” he told WA Business News.

“Alternative brick products may have been used at a more expensive price as a result of the recent shortage, but this is abating and virtually all our products are stocked and ready to go.”

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