"What is a fair price to build?"
I don’t profess to be the most qualified person to discuss this topic, but I am not the least qualified either. But having practiced as a typical Architect before donning the role of a builder, I have come across my fair share of absconding contractors and defective works. I have paid my tuition fees a few times over despite being an Architect in this industry.
With experience culled from both sides (architect and builder), this is my personal commentary on the goings-on within the building industry – especially the private home segment.
This piece is not a criticism, nor representative, of any profession, trade or practice. At best, it is an insight into the problems of the trade and why so many people appear to have the same issues with their contractors.
To better understand the building trade, it’s important to go right to the basics – to the contractors themselves and who they really are.
You see, most general contractors are ‘hard’ people. They grew up in hard territory, and must struggle to survive in a very competitive industry. Many contractors lack paper qualifications, and join the industry out of necessity. With time, they pick up the tools of the trade and learn from this ‘school of hard knocks’.
The perception of easy money in building persists even today, despite the very different realities of doing business. The past few years have seen hundreds if not thousands of contractors going bust, from public listed companies right down to the small guy in Geylang.
I hear this a lot from my clients, and from those who are not in the know. “How difficult can it be to get a few foreign workers, pay them minimal wages, lay a couple of bricks, then slap on the plaster and paint, and charge hundreds of thousands of dollars ...”
In this regard, the impression of many home-owners and contractors converge – that tens of thousands of dollars can be saved or made through hard bargaining and/or maybe short-changing somebody somewhere down the construction value chain.
Bargaining down to a final price, particularly to a much lower figure, is surely one of the most compelling reasons to be short-changed during construction. I would vouch my last dollar that what you will save is not worth the long-term headache that you could be in for. There is just too much room in construction to trim that much money, and if you are not prepared to pay for it, then I would strongly suggest you don’t build your dream house. Time and again, we have seen this most unfortunate cycle keep replaying itself through ’newbie’ house owners building their houses for the first time. It is simply not worth the savings.
A typical house-building project involves more than 25 skilled people from the different trades. Some skilled building trades, because of their specialised nature, are sub-contracted out because it is much more cost-efficient to work with a separate specialist company than an in-house tradesmen.
Each trade will have its own overheads and business costs – such as salaries, office space and equipment rentals, utilities, booking-keeping and other operational expenses. Like all businesses, each trade works hard to turn in a profit at the end of the day.
Take this trade and its profit margin, and multiply it by 25 other trades. Next, add the main contractor and his estimated 10% margin to the equation, and you realise how the numbers add up.
But wait, don’t be too quick to zoom in on the main contractor’s profit. Keep in mind that he assumes overall responsibility for the various trades and undertakes the risks as well. The main contractor must supervise and coordinate, take care of cashflow and workflow, and handle wide-ranging myriad tasks spanning legal requirements to approvals from the authorities.
The 10% margin is really the professional fee paid to the main contractor for risk-taking, and as a business return. By all counts, this is hard-earned fee quite distinct from pure profit (defined as earning loads of money from doing very little). Given Singapore’s limited domestic market and intense competition, the margin has to remain low, or you are out of the game!
The Asian mentality of bargaining is not applicable in every situation – and certainly not in building.
In building construction, many corners can be cut without the home-owner’s or architect’s knowledge. And it can start from the top – from procurement right down to the way the details are constructed. Some details can be done cheaply, others luxuriously. At the end of the day, you get what you pay for.
If you think your contractor is going to cut corners whether you bargain or not, then you may have started with the wrong guy. I suggest that you take two steps back, shortlist only the contractors you are comfortable with – that is, people you trust and feel confident about – before you sign on the dotted line.
Be prudent. You are building a home for yourself and your family. Not only is it a financial decision, it is also an important emotional investment.