WHAT CAN WE LEARN FROM THE

CONSTRUCTION COST AND ECONOMIC

VARIABLES?Javier Mustieles

26th June

1. Introduction and background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

INDEX

1. Introduction and background

Investing money in a construction is risky

To avoid risks, it is essential :

• Predict the profit

• Reduce costs

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

INDEX

2. Aims, objectives and scope

• OBJECTIVE 2The effect of the world

economy in the construction sector

Where and when is the right moment to invest

• OBJECTIVE 1

The cheapest or most expensive country for building

• OBJECTIVE 3

The most profitable country to build in.

• OBJECTIVE 4

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

3. Literature review

SIMILAR STUDIES:

“Turner & Townsend”Gardiner&Theobald”

They talk about…

Materials costs Key trades costs Labour costs

-PREDICT PROFIT-REDUCE COSTS

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

4. Methodology

Procedure for the study of costs:

• Selection of countries for the analysis• Development of the study:

Analysis of the economy of the country Analysis of the housing market Simulation

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

5. Data collection 5.1. Selection of the countries

Criteria of selection

Different economicsituations

3) Developed country in recession

1) Developed country coming out of recession

2) Emergent country

5. Data collection

MICRO-ECONOMY

The factor that has the most influence

on construction costs

The economy of the country

5.2. Analysis of the economy

MACRO-ECONOMY2 levels of economy

5. Data collection5.2.1 Analysis of the economy

MICRO MACRO

• UNEMPLOYMENT RATIO

• GDP INDEX

• PERCENTAGE OF CONSTRUCTION IN GDP

• INFLACTION

• STOCK OF HOUSES

• WAGES INDEX

• BANK INTEREST RATIO

• COST OF KEY MATERIALS (STEEL,CONCRETE…)

• COST OF KEY TRADES

• LABOURCOST

• PRICE M2 OF HOUSE

5. Data collection5.2.1 Macro-economy

Unemployment ratio

YEARS 2008 2009 2010 2011US 5,8 9,3 9,62 9

MALAYSIA 3,4 3,6 3,1 2,8SPAIN 10,46 17,73 19,97 21,23

2008 2009 2010 20110

5

10

15

20

25

U.S.AMalaysiaSpain

YEARS 2008 2009 2010 2011U.S.A -0,4 -3,5 3 1,7

MALAYSIA 4,8 -1,5 7,2 5,1SPAIN 0,9 -3,7 -0,3 0,4

5. Data collection5.2.1 Macro-economyGDP index

2008 2009 2010 2011

-5

0

5

10

15

20

U.S.ASpainMalaysia

5. Data collection5.2.1 Macro-economyImportance of construction in GDP

YEARS 2008 2009 2010 2011U.S.A 4,3 3,8 3,4 3,3

MALAYSIA 4,4 6,2 11,4 4,7SPAIN 10,6 10,4 10,1 9,3

2008 2009 2010 20110

2

4

6

8

10

12

U.S.AMalaysiaSpain

5. Data collection5.2.1 Macro-economyWages index

YEARS 2008 2009 2010 2011U.S.A -1,18 1,85 2,00 0,94

MALAYSIA 2,50 -1,40 9,77 17,53SPAIN -1,03 -4,48 -6,09 -8,18

2007 2008 2009 2010 2011

-10

-5

0

5

10

15

20

25

USAMalaysiaSpain

5. Data collection5.2.1Macro-economy

Conclusion

USA MALAYSIA SPAIN

• Unemployment

• GDP

• % of construction …in GDP

• Wages index

• Unemployment

• GDP

• % of construction …in GDP

• Wages index

• Unemployment

• GDP

• % of construction …in GDP

• Wages index

5. Data collection5.2.2 Micro-economy

STOCK DWELLINGS

• To know and ...understand the ...demand of houses

PRICE OF DWELLINGS

• To know the profit …can be obtained

In chosen countries- USA

- Malaysia

2008 2009 2010 2011 20121720017400176001780018000182001840018600188001900019200

empty houses

empty houses

QUANTITY IN THOUSANDS 2008 2009 2010 2011 2012

Quantify of houses 130.840 130.587 130.845 132.474 132.961Occupied houses 111.854 111.711 112.451 114.086 115.033

Empty houses 18.986 18.876 18.394 18.388 17.928

2008 2009 2010 2011 201284.8

85

85.2

85.4

85.6

85.8

86

86.2

86.4

86.6

% Dwellings occupied

% oc-cupied

5. Data collection5.2.2 Micro-economy in US

Stock market

2007 2008 2009 2010 2011 2012

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

HOUSE PRICE INDEX

HOUSE PRICE INDEX

%

12%

5. Data collection5.2.2 Micro-economy US

Price of dwellings

2008 2009 2010 2011 201277.5

78

78.5

79

79.5

80

80.5

81

81.5

82

82.5

OCCUPANCY RATIO

OCCUPANCY RATIO

2008 2009 2010 2011 20128800000

9300000

9800000

10300000

10800000

11300000

11800000

12300000

TOTAL SPACE

TOTAL SPACE

(QUANTITY IN s.m) TOTAL SPACE SPACE OCCUPIED OCCUPANCY RATIO2008 9,786,603 7,957,754 81,32009 10,072,809 8,242,864 81,82010 10,660,796 8,597,424 80,62011 11,263,069 8,954,344 79,52012 12,071,195 9,553,526 79.1

5. Data collection5.2.2 Micro-economy Malaysia

Stock market

2007 2008 2009 2010 2011 20120

5

10

15

20

25

HOUSES PRICE INDEX

HOUSES PRICE

17%

5. Data collection5.2.2 Micro-economy Malaysia

Price of dwellings

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

5. Analysis5.3 Simulation

To carry out the simulation three steps are followed:

Obtain information about:• Costs of key materials • Trades, • Labour preliminary costs• Interest rates

Create a house model

Find out the price of

that house in the real

market

5. Analysis5.3.1 Simulation

Obtaining information

The information is based on:• Websites• Similar studies of this field

Examples: • “Turner & Townsend”• “David Langdon KPK”

5. Analysis5.3.2. Simulation

Create a model

Concrete detached house – 200m2 built.

REQUERIMENTS OF THE HOUSE:

• SAME TYPE / SAME NUMBER OF FLOORS.

• SAME QUALITIES.

• SAME SURFACE.

• BUILT IN THE YEARS 2011-2012.

• SEARCH IN DIFFERENTS LOCATIONS / STATES / REGIONS.

• GET A BIG NUMBER OF THEM.

5. Analysis5.3.3 Simulation

Research of the model’s price

2008 2009 2010 2011

Total cost 300.317,03

287.068,47 286.043,59

294.363,74

Cost m2 1.501,59 1.435,34 1.430,22 1.471,82

Price house 1.682,94 1.648,27 1.577,72 1.537,96

Profit contractor margin per m2

181,35 212,93 147,50 66,14

10,78% 12,92% 9,35% 4,30%2008 2009 2010 20110.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Profit contractor margin per m2

Profit con-tractor margin per m2

%

5. Analysis5.3.4 Simulation US

Simulation output

2008 2009 2010 201125.00

26.00

27.00

28.00

29.00

30.00

31.00

32.00

33.00

Profit constructor margin per m2

Profit con-structor margin per m2

2008 2009 2010 2011

Total cost146.462,6

3143.228,7

4150.536,4

4157.100,5

7

cost/m2 732,31 716,14 752,68 785,50

Price house 972,02 1.024,60 1.105,86 1.150,31

Profit constructor margin per m2

239,71 308,46 353,17 364,81

24,66% 30,11% 31,94% 31,71%

5. Analysis5.3.4 Simulation Malaysia

Simulation output

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

6. Discussion of results

LOW COSTS

HIGH PRICE OF THE DWELLINGS

THE MOST PROFITABLE

PLACE TO BUILDMALAYSIA

31%INCOME OF THE INVESTED

MONEY

Due to

6. Discussion of results

THE PERCENTAGE OF EMPTY HOUSES IS INCREASING

2008 2009 2010 2011 201277.5

78

78.5

79

79.5

80

80.5

81

81.5

82

82.5

OCCUPANCY RATIO

OCCUPANCY RATIO

THIS COULD PRODUCE:

LOWER HOUSING DEMAND

LOWER HOUSING PRICES

LOWER PROFIT INCOMES

6. Discussion of results

2008 2009 2010 2011 2012 20130.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00USA PROFIT

Profit con-tractor margin per m2

%

2008 2009 2010 2011 2012 201325.00

26.00

27.00

28.00

29.00

30.00

31.00

32.00

33.00MALAYSIA PROFIT

Profit construc-tor mar-gin per m2

Forecast

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

Investing in US

Investing in Malaysia

• The demand of houses maintains Less risk• The price of dwellings does not recover Less profit

• Very high benefits High profit

• Housing demand decrease High risk

7. Conclusions and recomendations

INDEX

1. Introduction and Background2. Aim, objectives and scope3. Literature review4. Methodology5. Data collection and analysis6. Discussion of results7. Conclusions8. Citations and referencing

8. Citations and referencing

INTERNATIONAL CONSTRUCTION COST SURVEY

by GARDINER & THEOBALD www.gardiner.com/

INTERNATIONAL CONSTRUCTION COST SURVEY

by TURNER & TOWNSEND www.turnerandtownsend.com/

I could get information about the construction costs in differents country from studies already done like:

8. Citations and referencing

www.bls.gov United states departament of labour

www.tradingeconomics.com Economic analysis enterprise

www.epu.gov.my Malaysian government

www.governing.com Business news

www.census.gov Stadistic office united states

www.payscale.com Information about labour cost

www.turnerandtownsend.com Information about international costs

www.tradingeconomics.com Basic macro-economic data

WHAT CAN WE LEARN FROM AN INTERNATIONAL

CONSTRUCTION COSTS LONGITUDINAL STUDY?

Javier Mustieles 26th June