Is Construction Contingency Just Extra Profit?

Timing belt

Timing belt wrote: »

This is the Document that was released today on the apartment costs

https://mk0societyofchag3d3v.kinstacdn.com/wp-content/uploads/2021/01/SCSI_RealCostofNewApartmentDelivery_final.pdf

Need to go through it in detail but from glancing at it they are saying that it is not viable to build certain types of apartments.... I wonder are these non-viable apartments that one's that DCC are looking to buy?

Can someone please explain why a contingency is included in the cost of building an apartment when there is already a profit margin included?
(see page 22)

Graham

Timing belt wrote: »

Can someone please explain why a contingency is included in the cost of building an apartment when there is already a profit margin included?
(see page 22)

A developer that uses their profit margin to cover contingencies isn't going to be developing for very long.

Timing belt

Graham wrote: »

A developer that uses their profit margin to cover contingencies isn't going to be developing for very long.

And if they don't use the contingency it is 100% profit.... So it comes down to how well the developer manages the project right?

Graham

Timing belt wrote: »

And if they don't use the contingency it is 100% profit.... So it comes down to how well the developer manages the project right?

I guess you could say that if a developer is good at foreseeing unforeseen expenses he'll have accounted for the unforeseen items in advance so the costs of those otherwise unknowns will be known and accounted for with a larger initial build budget of known rather than unknown amounts.

Timing belt

Graham wrote: »

I guess you could say that if a developer is good at foreseeing unforeseen expenses he'll have accounted for the unforeseen items in advance so the costs of those otherwise unknowns will be known and accounted for with a larger initial build budget of known rather than unknown amounts.

Is that not the risk he is taking in developing the property and with the risk comes reward in the form of profit.

For example If I was buying a product to sell on i would price this risk in my profit margin and not have a separate contingency line. For me it is just a way of reducing the profit margin so they don't look so greedy.

Browney7

Timing belt wrote: »

Is that not the risk he is taking in developing the property and with the risk comes reward in the form of profit.

For example If I was buying a product to sell on i would price this risk in my profit margin and not have a separate contingency line. For me it is just a way of reducing the profit margin so they don't look so greedy.

I'd interpret it as the profit margin plus the contingency would be a "loss free profit" so to speak. If the expected level of unforseens accrue they'd make the profit margin and if the level of actual unforseens exceeds the expected level it would start to eat into their profit.

Graham

Mod Note

interesting topic but not particularly new to property market 2021 so I've split into a thread of its own.