Does "Construction Costs" Include Land Purchase?
Monday, October 31 2011 @ 01:38 PM UTC
Contributed by: Don Winner
General Rule Of Thumb: Once you get into the main thrust of the construction on any property, a general rule of thumb for planning and budgeting is that if you spend $1,000 dollars for materials, it's going to cost you about the same amount, another $1,000 dollars, to have those materials installed. There are slight variations for the "skilled" labor - such as electricians, plumbers, and tile layers, but for the most part it all evens out in the end. And these numbers tend to hold generally true even though the prices of some materials have gone up due to inflation, the cost of construction manpower has also gone up somewhat. So, if you spend a total of $40,000 on all materials, you'll spend another $40,000 (roughly) on the labor and manpower to have those materials installed, plus costs for the land, plans, permits, etc. Developers typically double their money. Meaning if I can build a 150 square meter house in the interior while keeping my total construction costs down to $500 per square meter, then it costs me $75,000 to put it up. Add another $25,000 for the land and I'm in for $100,000 to build it. It then goes on the market for sale at $200,000 dollars or $1,333 per square meter. That's the business. Generally speaking if you can do it all yourself you can save a lot of money - but you pay for in in time, stress, blood pressure points, etc. There's no such thing as a free lunch.
Variations For Fit, Finish, And Location: It would cost a whole lot more to build a house in a remote location in Bocas del Toro because every bag of sand, piece of wire, and nail has to be transported to the construction site on a boat or barge, one bag at a time. It would cost a whole lot less to build the identical house near Panama City, just because you would have access to a wide selection of suppliers for your building materials (so you can shop and price compare) and the transportation costs are a whole lot lower. Likewise, the more "finished" you want the place, the more it's going to cost. Most Panamanians don't have the money to really trim their places out so many of them look like construction sites on the inside - not really finished out. If you want to go "cheap" you can do it that way as well, which would also greatly reduce your delivered price. And then there are variations on the basic prices for materials. You can buy a cheapo toilet for $80 bucks, or you can get the top of the line model for $500 - you make the call. There are many places where these kinds of decisions will impact the bottom line, like floor tiles, wall tiles for the bathrooms and kitchen, counter tops, quality of interior doors, etc. Most of the time if you're on a budget you find yourself picking out things that are "good enough" for your own personal tastes. High end builders lean towards the more expensive "fit and finish" items, hoping to get their investment back when they sell.
Building Type: Are you building a high rise apartment tower in Panama City, or a one story single family house in the interior somewhere? Normally your construction costs increase greatly as soon as you go up - off of the ground floor. If you stay at one level then you don't require any real heavy columns, beams, or footings to hold up the second (or more) stories. If you are in the interior somewhere and you have the land and space, it's a lot cheaper to just pour your main floor, and then you need enough structure to hold up the roof. The walls can become "load bearing" in some places by simply running steel rebar rods down through the holes in the blocks and filling those holes with cement to make a sort of interior column to support the roof, without the need for a formed column. Also, many older people like the one floor layout because there are no stairs to climb - making the house easier to live in for cleaning, laundry, etc. In Panama City many people choose to go "up" because they have a limited footprint of land and they want to maximize their living space built over top of that relatively small footprint. Price per meter construction costs for apartment buildings and condos goes up with the addition of elevators, many floors of parking garage, common and social areas, pools, a gym, or what have you. All of that gets figured into the "construction cost" for every apartment in the building.
The "Screw You Gringo" Fudge Factor: I've done many construction projects in Panama. My Spanish is fluent. I've been living in Panama for 24 years. I've got excellent personal contacts, And, I've got experience in these kinds of projects. Even with all of those advantages I still spend most of my time fighting to make sure that I'm not going to get screwed over. It seems like as soon as any Panamanian sees a big gringo coming down the road, their first instinct is to try to find a way to suck as much money as possible out of you, do to as little work as humanly possible, and to move on to find the next victim. You always have to make sure you remain on the "power side" of the money equation. Meaning, buy your own materials yourself and keep them under your control. Never (ever) "front" any money to a contractor, for any reason. Make them do the work (first) before you hand over a dime. Make them sign a contract with strict guarantees on performance and delivery dates, including clearly defined payment schedules with no "wiggle room." Many contractors will promise the moon to get the job, then once they have you suckered in then the little extra expenses start coming up, each with their associated sob story. Make sure you clearly define - in writing - that if there are any undefined or unexpected expenses, then it falls upon the contractor to suck those up. When he's quoting how much it will cost to do a job, such as install a roof for example, it's up to him to know how to measure, estimate the required materials and manpower, how long it's going to take, etc. If he falls two weeks behind because he hired lazy employees who don't show up, then that should be his problem, not yours.
Been There, Done That: Can you tell I've been through these kinds of arguments about 1,000 times? Each individual member of our community of English speaking expatriates will have their own "been there, done that" sob stories about what they went through while building their dream home in the Republic of Panama. The only story I've never heard is the one that goes "it was a piece of cake, there were no problems whatsoever - our contractor delivered the house as promised, early and under budget, and we've never had a single problem with anything in the house. We are simply tickled pink..." That, my friends, has probably never happened in this country. Another rule of thumb has to do with delivery dates. If they tell you 10 months, then expect it in 20. I would invite anyone who has gone though their own construction experience in Panama to share your thoughts in the comments section. These are the kinds of articles that get read thousands of times, and eventually become very valuable to people who are moving here.
Copyright 2011 by Don Winner for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.