Many developers find themselves in challenging situations due to the rising cost of building materials caused by inflation and fluctuating interest rates. However, with strategic planning, a rethinking of off-plan strategies and smart decision-making, the effects of inflation can be mitigated. Here are five proven ways developers can thrive despite economic volatility:
- Adopt Value Engineering Early
Value engineering ensures maximum efficiency without compromising quality. This involves eliminating waste throughout the entire construction value chain. From the design stage to material procurement, identify cost-effective alternatives in materials and construction techniques. By eliminating waste, you can save money that may be needed to cushion the impact of inflation on your project.
- Leverage Bulk Purchasing
Purchase 80% to 90% of your construction and finishing materials at the beginning of the project, particularly reinforcements and imported finishing materials. If storage is a challenge, negotiate with distributors for a delivery schedule directly to your site. This approach requires substantial funds early in the project, so securing full funding upfront is preferable. Use off-takers’ payments as your repayment strategy rather than relying on them as your primary funding source, as these funds are often not available in bulk during the early stages of a project.
- Leverage Fixed-Price Contracts
Fixed-price contracts with suppliers and contractors can help lock in costs and hedge against inflation. These agreements transfer the risk of price increases to the suppliers, ensuring that your project remains within budget even if material costs rise unexpectedly.
- Secure Favourable Financing Early
In a volatile economy, interest rates can fluctuate significantly. Partner with financial institutions to secure favourable long-term rates early in the development process. Additionally, explore hedging tools like interest rate swaps to mitigate the impact of rising borrowing costs. Consider funding options for green and sustainable developments, as they often come with additional financial incentives.
- Invest in Technology for Efficiency
Technology-driven solutions, such as Building Information Modeling (BIM) and construction management software, can streamline operations and reduce waste. Real-time project tracking and automation minimize delays, which are often worsened by inflationary pressures.
By implementing these strategies, developers can protect their investments and maintain profitability in uncertain economic conditions. As inflationary trends persist, adaptability and proactive planning remain essential for success.