With house prices soaring in capitals and regions, the great Australian dream of home ownership may look like this: a dream.
One way to get around the high costs of established properties is to consider building your own. There are many companies that offer land and house packages, not to mention buying land and going from there.
But it’s not always cheaper – and the pandemic has brought with it a potentially costly new set of risks.
How shipping costs can slow down your projects
As we know, most items today come from China, and when you’re building a property, it’s no different. Shipping costs over the past 6 months have skyrocketed and we are now seeing costs up to 500% higher than in 2019.
What this means for you and me is a higher price for construction.
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The reason for this is actually similar to why land and house packages tend to be more affordable than buying land separately and building: companies that offer packages can offer better deals to builders and suppliers , which makes them more profitable for them. so they can offer you a good price.
With shipping, big savings and businesses can also order on a larger scale, so they are ahead of us (Australia) online for shipping. So the global supply and demand issues at play mean we are seeing a huge backlog in lead times for landed goods – and rising costs.
It started before these shipping issues
Two of the largest timber mills in the country, Tumit and Tumbaruma, were only able to supply a reduced number of bushfires in 2019/2020 and the effect of this has only really been felt since June, this which means a slowdown in the local supply of wood and a greater reliance on foreign materials.
In the last Producer Price Index Reportthe Australian Bureau of Statistics says prices for key building materials rose 17% to 43% in the year to December 2021. This includes:
- reinforcing steel
- steel beams
- Construction wood
- Plastic piping
- Copper piping and fittings
- Plank and wood windows
Other trades, including general construction, landscaping and carpentry, also saw year-on-year increases of between 9% and 16%.
The extra cost of shipping issues
This is where the additional problem of shipping lines, prices and the AUD/USD dollar comes into play.
Many or the largest shipping lines in the world are less concerned about getting goods to Australia than they are getting them to the US and Europe and then to China for reloading.
This is partly due to increased demand from more populated areas, as well as distances: ships can make multiple trips to the US, Europe and the UK in the same time it takes to get to in Australia and New Zealand.
Transit times are also critical as Chinese factories run out of space to store goods and then suspend production while waiting for available shipping containers to clear warehouses again.
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Longer lead times for materials and trades have put pressure on project completion times, meaning you could face delays that could add to other costs (like rental pending completion of the building).
Another overlooked cost factor is currency exchange.
Almost all shipping and freight companies charge in US dollars. If they prepaid or forward purchased the US dollars, you don’t know what it will cost. If this is not the case, you may be exposed to exchange rate fluctuations, which have fluctuated between $0.70 and $0.75 over the past few months.
This means that a shipping container cost of around $15,000 could increase to $20,000 or $21,500. And that’s before taking into account the cost of goods and the added USD/CNY exchange rate movements that can also have an impact.
What if you are building a house now
These increases in so many components of a new build can add up and put pressure on everyone involved, from future owners to builders and suppliers.
So if you are planning to build or are already building, an important step is to talk to your project manager, builder and even the lender about potential delays and price changes. This way you’ll all be on the same page and can even get more information from other people involved (like builders who have been working on the shortages for the last two years).
Here are some other handy ways to keep you on top of potential issues:
- Place orders in advance
- Addressing supply issues and construction schedule delays
- Discuss contingency plans
- Examine different suppliers, fittings, finishes and other aspects of construction so that you can rotate if necessary
- Buy products locally if and when you can (although this may incur other costs)
In some ways, construction is like a scaled-up version of buying foreign currency: you don’t know exactly how much it will cost until it’s finished. But the more you know about what’s going on right now, the better prepared you’ll be for any changes that will affect your budget — and your end goal of owning a home.
If building a home isn’t quite the right decision, learn how to buy an existing home with this step-by-step guide.
Chris Broadfoot is the founder of CB3 Global Payments and assists companies with international trade strategies, including risk management and foreign exchange markets.