Covid-19 brought Metropolitan Melbourne and parts of Regional Victoria down to a grinding halt, reminding us of the fragility of consumer and business sentiments. The downturn of activity led to a bit of confusion and hoarding across the state. Amongst it all, we were getting enquiries on peoples building insurance levels.
A lot of people seem to think that the cost to rebuild for Building Replacement or Building Reinstatement purposes should be moving in sympathy with current levels of economic activity. That isn't right, at least not all the time. Low economic activity and inflation rates, does not always translate in lower building construct costs.
The consumer price index fell by 0.3%, year-on-year in Q2 2020 - Sources, ABS, RBA.
Building construction costs anticipated to increase by 4% - Sources, Rawlinsons Construction Handbook, July 2020 update.
Infrastructure spending is predicted to remain resilient in the medium to long term. The same goes for Low rise developments and residential housing. High-rise residential and commercial projects will be subject to immense cost pressures due to Covid-19 distancing rules. However, as Victoria is nearing the end of Stage-4 Lockdown, coupled with continued government stimuli, and the modest state of the Victorian economy, tender prices may become more competitive, we shall see.
When renewing your Building Insurance, the Building Price Index (BPI) is a much better indicator of movements, not the inflation rate. Please note, BPI is one of many factors when we assess a building's replacement cost. For more information on our building insurance valuation services, please follow this link.
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