COST-BENEFIT ANALYSIS ON BUILDING HIGHER LEVELS IN RESIDENTIAL PROPERTIES

Abstract

This study attempts to investigate the possible relationship between the transaction price and cost of construction of condominiums, a potential cost benefit analysis on building higher levels, namely in the Upper Bukit Tmah region. The subject condominiums were chosen because of their congregation within close vicinity allowing many of the factors that influence the value of property to be kept constant. This in turn makes the study of the attribute of increase in floor levels, and how it affects the transaction price of the units, to be more clearly investigated. In order to achieve this, simple linear regression is carried out to determine the relationship of the dependent and independent variables. Next would be the study on how construction cost is affected by the increase in height of the developments. Also using the regression analysis, one can conclude that the unit cost of construction increases as the floor storey increases, especially beyond 40 floors where the cost increment would be more substantial. It is also found that as the floors increase the average unit transaction price increases, however, it is not possible with such limited information to be able to conclude on what would be the optimum level that developers are to built to, maximizing on profits. Whereby over that point would mean that the marginal construction cost exceeds the marginal transaction price. Nonetheless, this study provides a possible insight for developers in looking at the relationship between cost and price with regards to the increase in height, and with aided further studies to compliment this, an optimum level can be initiated.