/api/
/bo/
/dashboard/

How we assess a building's replacement cost

Insurance is often considered a grudge purchase.

That is, until it is time to lodge a claim.

The same can be said of a legally prescribed valuation for sectional title schemes. Bodies corporate only appreciate its value when their claim is paid out in full without any insurer dispute. In addition, a building valuation is expected to be prudently done but low-priced.

Read: Trustee liability in the event of underinsurance.

That is why we apply the “rate-per-square-metre-on-plan” method as opposed to assessing a building’s replacement cost by breaking it down into its various components. The latter method is typically employed by quantity surveyors and is significantly more expensive.

Construction costs

The replacement cost per m² (for insurance purposes) is inclusive of building services such as water, electrical wiring, air-conditioning, etc. However, it excludes the cost of site infrastructure development, outside parking, professional fees, demolition and rubble removal, VAT and future escalation of building costs.

While offering a quicker and more convenient estimation of construction costs, the rate-per-m² method is still a complex exercise that relies on detailed and accurate information obtained through a physical site inspection. It can be very misleading to evaluate different buildings' construction costs by comparing their individual rates per m² without considering the individual attributes affecting the construction cost.

The following key factors determine construction cost:

  • Wall-to-floor ratio: Buildings come in many different shapes and sizes. While both may be identical in floor area, a square building will have less total wall area than a rectangular building.
  • Floor-to-ceiling height: A house with a high ceiling will have a higher total wall area than a house with a low ceiling.
  • Internal subdivisions: The number of internal walls and partitions contribute to the total wall area; it therefore has an impact on the overall cost of a building.
  • Construction areas: Buildings with large low-cost areas such as parking, access corridors and balconies are not comparable with buildings that do not have such areas.
  • Building levels: A multiple-level building requires reinforced walls and foundations.
  • Grade of finishes: It stands to reason that there is a considerable difference in cost between a hardboard countertop and a granite countertop. The same applies to doors, windows, flooring, fittings and other hardware.
  • Standard of workmanship: The construction industry offers various levels of craftsmanship, ranging from certified artisans with formal training to casual labourers with hardly any training or supervision.
  • Plumbing and electrical installations: The number of plumbing installations such as bathrooms and toilets can be a significant costing factor. The same applies to electrical installations such as geysers, motorised gates, air conditioners, etc.
  • Topography: Erecting a building on a sloped site is costlier than a building on level terrain.
  • Site works: Boundary walls, retaining walls, paving, external lighting, swimming pools, koi ponds, decks and tennis courts are not included in the building rate per m² and must be costed in addition to the buildings.
  • Regional variances: Construction costs for upper class residential buildings in coastal regions tend to be 10 - 15% higher than in Gauteng owing to a greater demand for building materials, labour, and plant & equipment.

For a professional insurance valuation, contact Mirfin for a free quote.

Read our next blog: Why it's wrong to insure the market value of your house.

How we assess a building's replacement cost

06/11/2018

Much like insurance, having your building professionally valued may feel like a grudge purchase. However, when your claims are processed in record time and the entire amount claimed is paid out, you will be very happy you did!

Why it is wrong to insure the market value of your house

06/11/2018

Municipal rates in Johannesburg – have you checked your property values?

06/11/2018

How to insure owner-installed upgrades in sectional title units

06/11/2018

What the sectional title law says about valuations

06/11/2018

In this blog we highlight the key information for bodies corporate in the Sectional Title Schemes Management Act (STSM) No. 8 of 2011, including what a sectional title valuation ideally should entail.

Why the schedule of replacement values is important

05/11/2018

10-Year Maintenance Plans for Sectional Title Schemes: What you need to know.

05/11/2018

Trustee liability in the event of underinsurance

30/10/2018

Checklist for Insurance Valuations

30/10/2018

Contents valuation: Moveable Assets Registry (Part 2)

19/10/2018

Contents Valuations: Moveable Asset Registry (Part 1)

19/10/2018

Market value and replacement cost: Not the same thing!

19/10/2018

Attention: Short-Term Insurance Brokers

19/10/2018

Experience has taught us that approximately two thirds of all residential homes and contents are underinsured by between 20 - 50%. The reality is that very few property owners are correctly covered.

Retaining walls - the risk explained (Part 2)

19/10/2018

Retaining walls - the risk explained (Part 1)

19/10/2018

Common customer complaints

19/10/2018

This blog comprises a number of typical customer complaints that we deal with on a regular basis. Along with these complaints, we include our responses for easy reference and insight into common insurance valuation matters.

How to budget for a valuation and compare quotations

19/10/2018

With the Sectional Title Schemes Management (STSM) Act activated in October 2016, sectional title owners need to have insurance valuations done every 3 years. We look at how to go budget for this expense and the factors one must keep in mind when selecting a valuer. The key words are: professional indemnity insurance.

 

 

Escalation of Buildings Insurance

19/10/2018

When an insurance policy is due for renewal, many financial advisors will recommend a fixed annual escalation rate of 10%, sometimes even 15%. Does this reflect reality? What if the original sum insured was incorrect to begin with?

How the lack of an insurance valuation leads to averaging

19/10/2018

Without an updated insurance valuation, you could find yourself being underinsured and facing averaging by your insurer. As a trustee, you have a fiduciary duty to obtain an updated insurance valuation to ensure adequate insurance cover.