Verifying construction budgets
In the initial stages of a project, Aros Kapital assesses data from Office for National Statistics (ONS) and Rightmove to understand any high-level, broader risks associated with the project, such as location and market demand. BCIS data comes later – but this early-stage due diligence helps ensure the right product fit is built for the right market. For example, a development consisting of detached, executive homes designed to a high-spec may work in principle, on paper, and look fantastic on completion. But if they’re built in an area where demand for terraced housing outstrips executive homes, they could struggle to sell, as they’re not aligned with the buyer demographic.
During the credit process, the main counter parties will be financially assessed – these normally include the borrower, or ultimate beneficiary owner of the borrower, and main contractor. Subsequently, the gross value of the development is independently verified. Once these stages are complete, it’s time to analyse the granular data within the construction costs – as outlined in the quantity surveyor’s monitoring report.
This is where BCIS data becomes an indispensable tool in assessing commercial viability. The ability to benchmark and verify the costs in the developer’s budget helps to reduce the risk for Aros Kapital, as they can check whether the borrower’s figures match the most up-to-date market rates. If they’re under or overestimated, they’ll examine the possible reasons for this.
As Karens explains: ‘If an estimate to build comes in at £800 per square metre, but BCIS data contradicts this with a cost of £1000 per square metre, we’re armed with the knowledge to ask – how is this possible? It could be that the developer has a long, trusted partnership with a particular contractor who’s happy to lower their prices, due to the amount of work they’ve benefitted from over the years.’
Equally, if a project’s costs exceed BCIS figures, they’ll investigate the reasons that might justify the higher costs. For example, an investment in more expensive materials upfront could result in cost savings overtime, or the developer and contractor could have agreed to finish well in advance of the completion date. Either way, it’s important for any funding company to have this information before they proceed on a project.