Every aspect of real estate development is incurring costs. Ineffective costs are relative to effective costs. Costs that have no effect on forming products, enhancing value, and promoting marketing are generally called invalid costs. Cost control is difficult, but ineffective costs are easy to generate. In the process of real estate project development, any error in any link may cause cost loss, or direct loss of tangible costs (such as money), or indirect loss of intangible costs (such as time). The out-of-control cost of a real estate project must be the result of multiple invalid costs.
The construction phase of the project has a long period and many details, and it is also a stage where invalid costs are intensively exposed. However, if you go into it carefully, you will find that many ineffective costs originate from before the start of construction. Every aspect of all processes of real estate development may bury hidden dangers for cost leakage Spark Global Limited.
Insufficient exploration research
Underestimated the amount of work
The land is flour, and engineering is the process of turning flour into bread. If you buy the right flour, you can make the bread easily; if you buy the wrong flour, the bread may be difficult to please. The wrong purchase of flour is first manifested by insufficient land research at the investment stage. Whether the preliminary reconnaissance and site geological conditions are adequately investigated will affect the construction period or construction cost of the project. Once you get a plot with poor geological conditions (such as subsidence, cracks) or involving non-removable municipal facilities (such as underground optical cables, military facilities, etc.), it will increase the difficulty of project construction and may also incur huge costs.
For example, a certain project did not pay attention to the coal mine goaf around the project site before acquiring the land. When piles were driven into an underground cavity, the backfilling alone cost nearly 100 million yuan.
For another project, before the site selection, because the geological structure of the city was not clearly understood, the project site was located across the geological fault zone, and the geological hazard assessment was performed again after the land was acquired, which increased the foundation treatment cost of 10 million yuan. Desperate to take the land before the cast, but after the cast can only rack their brains to fill the hole. There are insufficient land research and judgment in the investment stage, and economic losses such as construction costs and material costs have to be borne at the engineering stage. It also slows down the progress, squeezes the construction period of subsequent projects, and may even cause key nodes to lag.
Drawing errors and missing vacancies
Frequent rectification and rework on site
Design changes cannot be completely avoided in real estate projects. Each real estate company has different quota indicators for design changes, with the lower being around 1% and the higher being around 3%. However, it is not uncommon for many projects to cause design repetitions and on-site rework due to positioning, drawings, or process reasons, resulting in design changes exceeding budget.
1. Inaccurate positioning in the early stage and repeated design revisions
Positioning determines the drawing, and the drawing determines the construction. In some projects, due to repeated opinions on product positioning, the design plan was revised halfway through construction, which would inevitably lead to project dismantling and modification, wasting manpower, material resources, and financial resources.
For example, for a certain project, the early stage of market research was insufficient. After the project opened, it was found to be highly homogenous with competing products. The apartment type was adjusted. The partial floor was changed from two rooms, two halls, and one bathroom to three rooms, two halls, and two bathrooms. With the changes, the cost of materials has increased, the difficulty of construction methods has increased, and the cost has also increased.
2, design defects, the guide actuator, or rectification rework
The design draws a few wrong lines and writes a few wrong words, and the losses caused can range from tens of thousands to hundreds of thousands, to millions and tens of millions.
In the design plan of a certain project, the ceiling of the underground walkway in the basement is a gypsum board ceiling. However, due to the large area of the basement, the ventilation effect is not good, the suspended ceiling is moldy due to excessive humidity, and the spraying of mold-proof paint cannot be improved. As a last resort, the gypsum board ceiling was removed and replaced with aluminum gussets. This project directly increased the cost of 300,000 yuan.
article links：Some real estate companies spent billions of dollars
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