 Obtaining funding for development in African countries can be a monumental task, especially in the property development market. Political instability, foreign currency exchange controls between banks and governments and a lack of strong legal structures in certain regions makes it tough for property developers to get projects off the ground. Even when all the necessary legislative documentation is in place, projects can be delayed for years due to a lack of access to funding.
DuRaan Conradie, member of the Association of Quantity Surveyors of South Africa (ASAQS), says that two of the major hurdles that property developers face are obtaining funding from banks and raising the prerequisite capital deposit – the equity contribution – for their projects. “Banks need security to be confident that they will get a return on the money they loan to a developer. Most banks require an equity contribution on average of 30% from the developers before they will consider granting a loan for the remaining 70%,” says Conradie. Large equity contribution keeps smaller developers out of the market After the global financial crisis, property developers in Africa find it increasingly hard to raise the required equity. While equity partners are often willing to loan developers the amount, they do so at high interest rates. “This dilemma keeps many smaller developers out of the market. Even if the envisioned project or development is financially viable and has a bulletproof tenancy and occupancy program or sales scheme, getting a loan from a bank means that you must prove that you have considered a number of factors and have received the professional input you need to move forward,” says Conradie. Feasibility studies can give banks the reassurance they need to fund projects Feasibility studies by specialised Quantity Surveyors can give property developers in Africa the negotiating power they need to not only obtain equity funding, but to get access to the debt funding from banks or other financial institutions. After a developer approves a feasibility study, the Quantity Surveyor is responsible for making sure that building costs and professional fees don’t go over budgeted allowances (which is a common problem with property and infrastructure projects in Africa) and that tenant installation contracts are in place. Financial institutions require viability studies as part of the loan application; they want to see evidence that the entire capital cost has been carefully considered and calculated. They also want to make sure that the developer is managing his risks where possible by appointing, for example, credible professional teams and building contractors.” “While larger development companies do viability studies themselves, many smaller developers should invest in the services of a professional. The fees related to having this study done on your project is minimal and it can help you secure the funding you need since it is a document that banks trust,” says Conradie. Developers are strongly advised to take advantage of the services of Quantity Surveyors for feasibility studies. “The red tape is there for a reason, but the guidance of a professional can make sure that all your commercial bases are covered, that your cost calculations are transparent, and that banks and donors see the value of partnering with you to bring your dream to life,” concludes Conradie. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za For more information on ASAQS please visit: Website: www.asaqs.co.za Facebook: The Association of South African Quantity Surveyors
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 Like many parts of the world, the South African built environment and construction industry is still in a slump. Economic pressure has led to a number of contractors relooking their pricing strategies to see how they can offer services at a lower price than their competitors. While this is a clever marketing strategy, it may expose clients to certain risks, says Henry van de Wall, member of the Association of Quantity Surveyors of South Africa (ASAQS), and Chairperson of its North West chapter.
“Some contractors may be able to absorb the cost of taking on projects that don’t necessarily yield a profit.” There are many ways that these contractors can lower their rates. A lower price could be offered if they are able to get material discounts from their suppliers, or if they are for example willing to cut their profit margins in certain areas. “While this can make good business sense in the current economic climate, it does open clients to certain risks,” warns Van de Wall. Clients being left with uncompleted buildings and legal costs One of the risks is that a contractor could be offering discounted rates to a number of clients and just scraping by or barely making a profit. If one or a number of his clients then defaults on payments, the contractor’s business may not be able to absorb the financial repercussions and be able to complete the work that he has committed to on other projects. In this case, a client’s building could be left uncompleted or the project could be delayed due to cash flow problems, or even worse – bankruptcy. “While hiring a professional Quantity Surveyor is often seen as something that only commercial clients should invest in, it is becoming more important than ever to obtain professional input regarding a contractor’s prices,” says Van de Wall. “This initial addition to the project costs will assist a great deal in protecting the larger investment.” Besides getting a market related estimate to confirm the tendered prices from a contractor, a Quantity Surveyor can also provide crucial clarity about the quality of materials and the scope of work that the client and contractor have agreed on. Avoiding unnecessary surprises in your Bill of Quantities Even with relatively straightforward building projects, the ASAQS has seen many disputes arising from contractors who are trying to bill for ‘extra work’ on building items that any client would rightfully deem to be included as a compulsory part of a building project. “A Quantity Surveyor can give clients the estimate, Bill of Quantities and professional guidance they need to protect themselves,” says Van de Wall. Quantity Surveyors aren’t only appointed to protect clients. Many contractors are also creating allowances for Quantity Surveying services in their own projects, which is the responsible way to proceed with building projects. Contractors are able to negotiate with Quantity Surveyors regarding fees so that they can still offer competitive rates to clients. The contractors then receive the benefit of being able to offer this professional estimation as a perk to clients, so it’s a win-win for all the parties who are involved in a project. “With this attitude, a Quality Surveyor isn’t seen as a referee, but rather an independent consultant and enabler who can provide the quality checks that both contractors and clients need to rest assured they are getting a valuable, financially suitable and sustainable building,” concludes Van de Wall. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za For more information on ASAQS please visit: Website: www.asaqs.co.za Facebook: The Association of South African Quantity Surveyors  Improvements in the construction process as well as the function of a building can be achieved through a highly underrated process called value management.
The value management process is ideal to improve a project’s function, streamline the construction process, highlight potential future problems and reduce capital costs as well as operational expenses in all spheres of construction: civil, industrial, mining, and energy projects, to name a few. “Value management is a broader view of the better-known term value engineering,” explains Chris de Wet, Value Management Advisor at the Association of Quantity Surveyors of South Africa (ASAQS). “It is a process that can determine whether a different way of designing, constructing, procuring and thinking is needed.” The process includes a complete value analysis of all components as well as the consideration of alternative material and process selection. It should ultimately result in savings and operational efficiency that ensures the client derives the most financial value from a project. Although it is not their exclusive domain, experienced and registered professional quantity surveyors are ideally suited to facilitate the value management process. “During the facilitation process each professional team member should be given an opportunity to present their project objectives, design ideas, and assumptions,” says De Wet. “Active participation from all attendees – team members, stakeholders, outside specialists, and the client – is crucial to the success of the process.” The person in the facilitating role should encourage collaboration by giving everyone time to question the objectives and assumptions that have been proposed, as well as to investigate the purpose and function of various building elements and alternatives. Each proposal can be prioritised and then evaluated based on a number of variables, such as its performance enhancing capabilities, operational efficiency, material and labour costs, and so forth, without compromising on the performance or integrity of the building. Value management principles are not being applied as often as they should due to tight deadlines and fast-tracked construction schedules, among others. A value management approach requires that a professionals commit extra time for the strategy and integrated analysis. “When professionals in a project team can join forces, flesh out assumptions, propose alternatives and evaluate options based on different areas of expertise, the results can be very rewarding for the entire project and ultimately the client,” says De Wet. “When implemented effectively, value management can not only save time and money, but also identify and resolve potential future problems before they arise. It also has the ability to create closer team work, better communication, co-ordination and delivery amongst the professional team.” ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za For more information on ASAQS please visit: Website: www.asaqs.co.za Facebook: The Association of South African Quantity Surveyors  A “cost per square metre rate” is a method of expressing building cost that should be used with extreme caution by both clients and contractors involved in the cost comparison and cost planning process, says former Association of South African Quantity Surveyor President, Bert van den Heever. There are a number of design variables which can adversely influence square metre rates, thereby giving a false impression of the cost of a building project and this can lead to serious problems for both clients and contractors. “You will not compare a Porsche to a Volkswagen on the basis of their cost per square metre, so why try and do it with buildings?” asks van den Heever “As a client, a generic cost per square metre rate doesn’t give you the detailed information that you need regarding finishes, fittings, services, site development costs, etc. There is a wide range of other building elements that also have an impact on costs and therefor quantity surveyors normally do elemental estimates to derive the square meter cost of a project. “An elemental estimate provides cost build-ups for elements such as the substructure, ground floor, external façade, roofs, etc. and enables the quantity surveyor to advise the client on aspects of cost at a very early stage” says van den Heever. “It is important to note that less than 40% of a building’s cost is the structure itself, so the project is far from completed once the foundation has been laid, the walls have been built and the roof constructed. Smaller contractors who tender on a cost per square metre basis puts both themselves and their clients at risk.” says van den Heever. We have, on numerous occasions, been approached by clients or their attorneys when building contracts turn sour, only to find that because there was no detailed breakdown of the costs, the project had run into trouble or come to a standstill due to overpayments on the structural elements,” says van den Heever. Why and how design variables play a role A square metre rate is calculated by dividing the net cost of the building (excluding site works, cost of land, etc.) by the gross square metres of the building or Gross Floor Area (GFA). Typically GFA can be defined as the total floor area inside the building envelope, including the external walls, and excluding the roof. “As a general rule, the simpler the shape of a building, the lower the unit cost will be, but even this can be misleading as a square building of 10x10m and a rectangular building of 25x4m have the same floor area but the rectangular building requires 45% more walling to enclose it. More intricate designs generally result in higher perimeter/floor area ratios – increasing excavation costs, drainage costs and a number of other construction related costs significantly,” explains van den Heever. Hiring a Quantity Surveyor early in the project, preferably not later than when sketch plans are being prepared by the architect, will put a client in the best possible position to achieve the look, finishes and final touches they want and still remain within their budget. “Both the client and the architect need to be fully aware of any additional costs or savings that may arise from shape, size, circulation space and a number of other variables in the design of a building. The services of a registered Quantity Surveyor can help them adopt an approach that will assist the client in achieving a suitable balance between cost, aesthetics and functional aspects,” concludes van den Heever. ENDS MEDIA CONTACT: Carla Coetzee, 072 112 8347, [email protected], www.atthatpoint.co.za For more information on ASAQS please visit: Website: http://www.asaqs.co.za/ Facebook: The Association of South African Quantity Surveyors |
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