Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
Whether you're a first-time homebuyer, an experienced investor, or simply curious about the property market, this podcast is for you. Join me each week as we unlock the secrets to property success and help you make informed decisions. Let's dive into the world of property together!
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Wondering whether to build your dream home with a friend or go with a major construction company? You're not alone. The unexpected financial implications of this choice can be staggering – sometimes reaching six figures.
The construction industry is bouncing back across New Zealand, with Otago leading the charge at 9% above its 2022 peak. As more Kiwis consider building, they're facing tough decisions about who should handle their project. We dive deep into a real case study where clients discovered a shocking price difference between quotes from their builder friend and major construction companies.
This isn't just about money – it's about the complex intersection of personal relationships and financial realities. Larger companies enjoy significant buying power that independent builders simply can't match, allowing them to offer more competitive pricing on identical projects. But does that mean you should always go with the bigger companies?
We explore the hidden considerations in construction contracts – from contingency planning to fixed-price agreements that might not account for rising costs. With timber prices projected to increase by another 10%, these details matter enormously. Sometimes, being a good friend means not building with your mate, especially if taking on your project might stretch their business capabilities too thin.
The construction comeback is gaining momentum across New Zealand, but navigating this landscape requires careful consideration of both financial implications and personal relationships. Have you faced a similar dilemma with building? We'd love to hear your story and what factors ultimately influenced your decision to build or not to build.
I'm joined by my trusted sidekick, Kunch. Hey Kunch. Keoda, how are you? Uh, as you can hear, my voice is not that great.
SPEAKER_01
Yeah, pretty quirky there. I'm not sure how we're gonna get through this. Podcasting of, you know, um sore throats, not very ideal.
SPEAKER_00
For those that listened to my early episodes, I did pull through um some is even no voice. Yeah, hey, you know, you gotta do what you gotta do. Anything's possible. That's right. So today, um, I really I was reading this um really cool report done by one of the banks. Um, not sure if I should name the the bank, but uh did you know residential construction um has dropped, right? Back in 2022. Yeah, but now it's actually picking back up. Yeah, so more consents are being issued. And guess who is the winner of them all? Which region in New Zealand has the highest consents approved since 2022? Do you want me to guess that? Uh if the listeners you're listening can try to guess. But yes. Okay, who do you think is the winner?
SPEAKER_01
Well, I I think the um area that's pretty much never really gets affected is um down south in our Otago area, especially um Queenstown. That little sweet spot just keeps pumping, like tourism, everything just keeps going there. It's like its own little isolated booming town.
SPEAKER_00
Crazy, yeah, crazy. So Otago, absolutely, reported building consents 9% above its previous 2022 peak. So in 2022, they had a massive peak,
and then things slow down a little bit for them, but now it's nine percent above that. So that's crazy. It means the activity is happening, yeah, and and we can see that, right? We've got a few clients that are building down there, and the cost, oh my god.
SPEAKER_01
Yeah, well, cost of construction has gone up, and it's still going up. So don't know what they're got in the water down there.
SPEAKER_00
But yeah, so if you're a builder and need a job, probably go down there because I'm sure they're looking for more trades. But um, what I really want to talk about today is how does it affect a normal consumer? So let's bring in a case study. Yeah, you had one really interesting one recently, didn't you?
SPEAKER_01
Yeah, so it's like to um build or not with a friend.
SPEAKER_00
Um okay. A friend is a builder. Yes. Okay, and why wouldn't you not want to build with a friend, for instance?
SPEAKER_01
Well, there's that friendship and that conflict of interest side of things as well. There's obviously, you know, if the if the quotes come through more than what um you expect or what you've heard, and you know, or you've done your research and things like that, it's gonna be a tough conversation to um have with that friend to negotiate the price.
SPEAKER_00
It's interesting because normally um people think, well, I'll build with a mate, it's gonna be cheaper. Yeah. And it's helping each other, right? Like supporting his business and he's getting business out of you. So uh we've yeah, we've recently had that one where a couple came in and they want to build, and they're like, cool, we've got this quotes from a friend. And then just as um, because the bank needed a few more quotes, because that builder is a private builder, yeah, and they wanted to get a few more quotes to make sure that what they're getting is the right deal for them. And unbeknownst to them, the quotes came back significantly cheaper from the bigger building companies. Yeah, yeah. Right? Yeah. And this is the moment where they went, crap, should we still be building with our friend if it's cheaper to go through a bigger company? And they were like, How come it's so much cheaper? And look, the reason for that is Well, the bigger companies have bigger buying power, right?
SPEAKER_01
So they've got more connections um with those suppliers. Um, so they're able to get, you know, a better margin on their products,
and then they're able to pass it on to their clients. Whereas our small man, one-man band builders don't reap those rewards like those big companies.
SPEAKER_00
And I think that's what it comes down to is that um just like you know, when you go and buy something from the warehouse, the warehouse has a crazy buying power versus when I used to own the retail shop, and for me to buy the same stationery was three times more expensive. Yeah, yeah. Um, so it just comes down to that. And unfortunately for like my store closed down when I sold it off to new owners and they couldn't carry on because um you can't compete. You can't compete with the big with the big beast. Yeah, the big beast, yeah. Yeah, so oof, so the dilemma they have, my goodness.
SPEAKER_01
I know, right? Because if you see those contracts, um, you know, you've got these building, big building companies coming in at maybe at six figures difference, right? You think about that six figure, you add interest on that sixth figure, that's a lot of money of a lot of difference to keep the friendship. To keep the friendship. So, although, yeah, it's a hard one, like like you said in the beginning, you want to have your friend um, you know, set up this portfolio as well, right? Because they get to add that to their portfolio for their business to grow in the future as well. However, if we're talking about a six-figure um savings to go with bigger, you've got to think
about yourself personally and your own financial position. Because then at the end of the day, you don't want to bankrupt yourself to please your friend.
SPEAKER_00
And the thing is, like, if it's a big project and I've seen them go wrong, right? The builder that built my house, they've gone bankrupt, they've gone under because um it was a big project for them. The price of the building was increasing and they underestimated. And even if it was a fixed price contract, we still ended up paying way more, but that wasn't saving grace for them. So you've got to be careful um also to look out for your friend. So maybe be a good friend, look out for your builder friend, and not build.
SPEAKER_01
Yeah, obviously find out what their contingency plan is and if they've got that overhead for any mistakes that will come through in terms of that build side as well, because when you're building, you're looking for that fixed price contract as well. So fixed price contract is the price that's locked in. Have they built in um and a house does not get built overnight, it takes months, right? Or years. So have they built in the cost increase into that fixed price contract? So say in a year's time, prices will increase with um inflation, and you know, timber is actually gonna increase by um 10%, I hear as well. So is that built into that contract?
SPEAKER_00
Exactly.
SPEAKER_01
And then has your mate got 10% to cover it if it's not built into that contract?
SPEAKER_00
Exactly. Yeah, exactly. So yeah, that's uh an interesting industry to be in. It's definitely coming back and it's starting to grow. But you know, if you're one man band and you don't have that buying capacity, this is where you gotta think it through. You know, what are you doing? Yeah, whether you should be teaming up with maybe a bigger company to pull through the project. Subcontracting with the bigger companies might be interesting. Interesting. Interesting. Awesome. Well, um, thank you, Conch, for this uh lovely construction episode. Thank you. We've covered we've covered a lot. But um, for listeners, look, if you've got a similar story,
we'd love to hear from you. We would love to find out whether you've got a piece of land and you're considering to build or not to build. Um, and what's stopping you, really? So reach out, we'd love to hear from you. Thank you. Bye.
