Experts speak of at least 30% profitability in housing construction

Real estate prices continue to rise, but what is the profitability of housing construction? According to the Statistical Office of the Republic of Slovenia, the growth in residential real estate on an annual basis is 6.7 percent, with secondary real estate increasing by 7.6 percent. Today, new apartments are much more expensive, by as much as 18 percent. What is the profit investors are making from building new apartments?

The Mayor of Ljubljana, Zoran Janković, emphasized in an interview with Bloomberg Adria that the profits of those building apartments in Ljubljana are extraordinarily high. “This is shown by a simple calculation. On average, the construction of a square meter of an apartment costs between 1,800 and 2,000 euros, utilities about 100, engineering works 100, financing 100, and land 100 euros, which totals around 2,300 euros per square meter. Apartments are sold from 4,500 euros per square meter and higher. Investors are still making a lot of money from this. I still maintain that there are significant reserves in this sector.”

In the construction of a medium-sized residential complex, the profit is at least 30%

We contacted several investors, who, understandably, did not want to disclose their earnings. Real estate agents are also unwilling to speak publicly on the matter but unofficially acknowledge the large profits. “I am sure that the profitability in constructing a medium-sized residential complex is at least 30%,” a real estate agent told us, who was informed about the profits by a small investor who built a few dozen apartments.

One of the construction supervisors overseeing two projects in Ljubljana and its surroundings told us that the earnings are good. “It is difficult to estimate what percentage this is, but it is certainly not small, because more and more wealthy people are getting involved in apartment construction. If the return were lower, these people would stick to their primary activities,” says the supervisor, who wished to remain anonymous.

He also says: “The taller the residential building, the higher the earnings, because with a higher building coefficient, the impact of the land price is significantly reduced, and no one is to blame for that. It’s also no surprise that an investor is willing to pay even a thousand euros per square meter of land. One must also consider that due to the drop in the price of construction materials, construction today is cheaper than, for example, two years ago.”

Construction is becoming cheaper due to increasingly tough competition

At the same time, the Statistical Office observes that competition from developers is gradually intensifying on the market. “It is more than obvious that there are not enough housing projects compared to the number of construction companies and that some are already lowering the price of construction just to close the deal. This is not extreme, but it is already happening,” says the anonymous construction supervisor. “One must realize that it is extremely difficult to compare residential buildings with each other. The construction of more prestigious apartments is certainly significantly more expensive than ordinary ones, and on the other hand, the earnings are lower than with mass construction.”

The risk for the investor is relatively small

At the end of our conversation, the construction supervisor explained to us that, considering everything that has been said, the risk of building apartments in the capital is extremely low. “Even if, though I don’t believe this, the market falls by 20 percent, most investors will still complete the project with a profit. However, since apartments are only becoming more expensive, many investors still easily enter the construction market.”

Source: https://si.bloombergadria.com/ostalo/nepremicnine/67051/kaksen-je-donos-pri-novogradnjah/news/