Looking at new construction and redevelopment projects for real estate and property investments, we see a huge potential for profits. Taking advantage of other cost effective industries one can find a lot of elements that can be leveraged. If we look, for example, at the car industry and the Lean methodology, and apply it to a construction or redevelopment process of an investment project, we can determine the pitfalls for the specific project. The key is to see the bigger picture, plan smart, follow up, do "backtracking" (probably where majority of the companies fail) and evaluate.
The bigger picture:
Take a bird’s eye view of any project, determine the reoccurring moments and activities and analyse their order through the way to the final product. We all know time is money. Less execution time implies less finance cost, quicker sales or faster rental revenue. Above 60% of all projects share common milestones and can be quantified by measuring priority, cost, resource allocation and project timeline. These numbers will help you to calculate the project cost per day and see the cost of a delay or a bonus per a saved day.
Project planning and follow-up are essential for better performance of any development or reconstruction investment. Defining scope of work and Work Breakdown Structure, known as WBS, gives you the details you need to know for the most time/cost effective execution. You can utilise several tools to build your project specific WBS based on templates. Gantt charts are widely used in project planning and management. Break every task down into the time, cost, resource and predecessor, meaning that the specific task can not be started before the previous one is done. For example, walls are depending on the foundation and roof comes after the main structure. Right calculations will result in a critical path - a chain of activities directly related to the deadline for the project.
During project execution it is important to update the project plan accordingly so that man hours, cost and time are calibrated to avoid major discrepancies. A lot of projects are only updated after project is finalised, which may cause important details being left out. Another important part is planning 3rd party activities, such as financing, planning, legal, architect, cranes, interior design etc. Contact point should be defined in the WBS so execution is done most effectively.
This is where the real improvements and profits are generated for future projects. Evaluating the entire project execution process will allow your next investment project to get more Lean and you can start cutting waste along the project. Manufacturing companies normally rearrange their processes to become even more effective. Doing several tasks simultaneously or cutting down on critical path activities will most likely result in less cost and duration of the project.
Utilising these simple yet profitable tools and strategies has been proven to give profits and also avoid losses when used properly. The car industry as well as several other high-tech industries has been optimising design, manufacturing & assembly for years, so why not leverage their investments into your own industry and business?
We hope this article will help you get more out of your property projects and inspire you for an innovative approach to real estate investments.
It is about time to support the councils to build more homes (The Guardian). There is a noticeable need for housing in the UK and any effort should be welcomed. However, according to our experience from other countries we operate in, there are some points that need to be brought up in the Britain’s real estate discussion apart from producing more homes.
1. Demand or cost. An important question when it comes to the price growth in UK is whether it is demand or low running cost that made the price increase over the last seven years. The interest rate reduction from 4-5% in 2000-2010 to just above 0 has reduced the cost of mortgages significantly. As a result, the mortgage cost during the last 7 years has been at low levels which is the core in price increases.
2. Technological progress. There are many methods of construction around the globe today that are technologically advanced and cost efficient, but still not utilized in the UK due to not being classified as standard construction. Wood, steel framing and many other methods could be implemented to reduce the cost of construction and therefore the price of the house. Our question is why is this discussion so limited in the UK today if the housing challenges are so clear?
3. Market inefficiency. Unfortunately, the market policy in UK is not effective and there are a lot of limitations increasing the transaction cost and time of transaction, including time for approval. The interest in the market from international capital is limited due to lower efficiency, particularly outside of London. The market has, however, seen some improvement within the permitted development during the last years and these changes are very favorable for increase in the construction.
We agree with the view that UK market needs to increase construction activities and we would welcome any change to simplify processes and offer more options. At the same time, the cost of living is not above the historical level, while the cost of purchase has increased due to higher prices. Therefore, as the best way to stabilize the market we see more activities around the affordable living and not the activities towards price reduction.
KL Property Partners
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