To determine the price of a new launch like price of The Tre Ver, you need to overview the property in parts. If we divide it into parts, the most expensive component will be the land, followed by the cost of construction and material. To do it in a thoughtful manner, think of it in terms of Cost of Goods Sold (COGS) theory we are familiar with in accounting. Add the administrative cost, sales and marketing expenses, finance costs, the margin of profit and everything else. You will generate the exact selling price.
Let’s take the example
A developer won the site in June 2015 at $344.86 million, and translate it per square foot (psf) it’d become $755 per Gross Floor Area (GFA). The construction costs included the architectural design, which was about $350 psf for a mass market condominium. Adding them up all you will get the base cost of the project. However, construction cost varies from the $350 psf used in estimation. It mainly depends upon luxury level of condos, luxury condos can cost up to $450 psf and ultra-luxury condominiums can cost significantly higher.
Now, take 30% of the base cost, it will cover the other expenses and yield profits for the builder or the developer. This will make up to about $331 per square foot, and the final sum will include;
- Administrative expenses: this will be comprised of the staff costs, rents of the office and other administrative facilities that will be provided by the developer to the building.
- Sales and marketing expenses: the cost of showflat building, commissions for real estate agencies, a budget for advertising for the development, lawyer fees for conveyancing etc.
- Finance costs: it will include the interest expense paid to the financial institutions for financing the development of the project.
- Profit margin: this will cover the percentage of profits that the builder will make for the development.
Keep in mind that this estimate is sorted especially for the current low price volatility environment. In case of raised prices during the period between tender award and launch, developer can review the price and make changes after analyzing the competitive market.