Experience from 2020 to 2022 has shown that any, even perfectly streamlined process (procurement, logistics, construction itself) can be suspended for a variety of reasons.
We have learned a lesson from the pandemic that human resources are more valuable than one could imagine. It is difficult to describe in two sentences what happened in the labor market in the second half of 2020.
Supply disruptions, which were accompanied by higher prices for existing goods and services, taught us to make more realistic forecasts, optimize the amount of consumables and be more careful with work in general. If in 2021 we managed to somehow balance the processes not only in the construction sector, but also in other areas, then the following year presented even harsher lessons, when the planning horizon was reduced to almost one day.
The main risks when investing in residential construction:
- Increasing cost of consumables and the construction process (labor, logistics, taxes).
- Increasing construction time.
- Unprofitability of the construction project (for example, when the house is built in an inconvenient place or does not meet the needs of the target audience).
- Deterioration of the quality indicators of the project.
- Fall in potential demand and projected benefits.
- Decrease in sales and/or housing prices.
- Failure of contractors and/or partners to fulfill their obligations (in other words, dishonesty of the participants in the process).
- Tightening of legislation and introduction of new restrictions (taxes, fines).
When investing in the construction of commercial real estate, all the above risks remain, only in paragraph 6 it will be more relevant to replace housing with rental conditions.
The main rule: the more “formed” the construction project you invest in, the lower the risks and, accordingly, the profitability. Maximum risks, on the contrary, promise the greatest profitability.