Why does home-building nearly always entail a cost overrun?

Real Estate July 11, 2014 00:00

By Supitcha Chaipipat

2,779 Viewed

This is both a question and a problem for home-building and very often concerns the modifications that we always hear about. Let's look at how it happens, and then consider ways to minimise the risk.

Before anything else, we must have an understanding that home-building involves three major phases. First is structure lay-out, whose works include laying foundation pillars and basement and building beams for weight support. Second is brick masonry and plastering. At this stage, the structure of the house starts to take shape. 
These two phases are often within budget, unless there are some additional works such as cracking the wall when the space is not according to what the owner of the house foresees.
However, what often leads to a cost overrun is in the third and final phase, where the selection of home decorative items is involved. This is where people’s minds change as to the choice of floor materials, wall materials, house-painting colours, sanitaryware, lamps and so on, depending on the owner’s taste.
Owners may think the cost adjustment for new materials is minimal, but if they combine all the items together, they will realise that the budget is already way up high.
However, the real cause of above-cost building is the choice of an unprofessional home subcontractor. Often these people will leave the job uncompleted, leading to the hiring of a replacement and, therefore, a budget overrun.
It is in many cases also caused by the initially unclear wishes and requirements of the owners. Sometimes, they have already agreed to a house design, but then change it later when they see that the house in the making is not to their satisfaction or expectation, and thus want to change the design despite the higher cost.
Four tips
To minimise the aforementioned problems, the following tips should always be borne in mind:
l Ensure that the needs of the owner and members of their family are clearly set out and understood, in terms of lay-out, construction materials, decorative materials and an affordable budget. 
Most budgeting for home-building has three components. The first 60 per cent goes to construction, which involves structure and major construction works that are not adjustable. The adjustable part is exterior decoration. Another 30 per cent goes to interior decoration, which concerns aesthetic beauty and the taste of the owner in relation to air-conditioners, curtains and furniture. The final 10 per cent goes to landscaping and exterior decoration. 
l Secure a clear and comprehensive agreement, including identification of essentials such as price, design, materials and construction, as well as a fixing period, on paper prior to the commencement of construction. This is to avoid any conflict during work in progress, and to not waste time fixing and making changes during the construction process, which will add to the cost and finally end up in a cost overrun.
l When choosing materials, the owner must dedicate time to the materials required for a particular phase of construction in order to allow work to continue as planned, and to prevent instances of where the production of materials has already been terminated – or materials are overpriced. Also important is to choose materials according to what has initially been agreed.
l The owner should refrain from changing their mind if they see materials that they consider more favourable than what has previously been agreed upon. A salesperson will always attempt to persuade them to buy something different, but the owner could then end up spending more unnecessarily. 
To change materials, the owner should first consult with an expert in order to get enough information to make a decision that is worthy of such a change.
In conclusion, home-building is all about the owner’s satisfaction and budget. Most importantly, in controlling the budget the owner must have clear needs from the outset in order to make good and worthy choices. Their satisfaction is the most important thing. If they are not satisfied and want to change things, then the budget is bound to end up being exceeded.