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Why private developers reject real estate sector’s turnkey projects

Many developers are increasingly rejecting turnkey projects due to the huge financial outlay needed and other operational challenges, despite reduction in new commercial developments.

Turnkey projects are a delivery method in which a contractor works with a project owner under a single contract to complete all project stages from detail engineering through construction. Over the years, it was the most practical and convenient solution, especially for small and medium scale projects looking for rapid and not complex project implementation.

The Guardian learnt that project owners, who want to accelerate their commercial properties developments offer differential service contracts to their contractors, making their property much more attractive on the market, as the turnkey solution frees clients from bureaucratic complications, and long processes.

However, experts disclosed that the major hindrance in deploying the model is the price volatility, which can worsen issues with project budgets and cost overruns.

The Managing Partner, RefinHomes, Mr. Kazeem Owolabi, observed that the housing development used to be through a turnkey model. However, he said, the concept became cost inefficient; hence, developers and other players jettisoned it.

He argued that a major challenge is the volatility in the prices of materials in the market, mostly for the contractors and builders. “For instance, the contractor and developer might at the beginning agree they will undertake a project for N250 million, but while carrying out the project, the project may become as high as N400 million.

“What this means is that the contractor may deliver projects of less value in materials to keep within the agreed limit of N250 million. Turnkey concept is like a Bill of Quantity Project (BoQ) with agreement between the property owner and the contractor, in which the contractor will be paid a ‘one-time’ huge sum of money to do a project and deliver it in record time to the owner,” Owolabi said.

He said the advantage is that the builders can buy all the materials at once but there could be challenges, which may warrant the money for the project being used to execute other projects and using inferior products in the construction site.

“Developers now prefer incremental project development or building to guarantee quality in project delivery because trust can be an issue in the course of the project,” he said.

Former Chairman, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Dotun Bamigbola, said there has been interference by project owners to ensure maximum profitability in real estate developments, which negate the principle of the turnkey project.

He said real estate projects specifically require minimum, specialised and technical engineering inputs, hence, limit the desire for turnkey as it may be considered expensive in that regard.

“Turnkey projects need huge financing and the kind of engineering expertise to be deployed is also crucial to get finance. It is those infrastructure projects like building a bridge and others that require highly specialised engineering skills, that now use the turnkey concept,” he said.

The Head of Research, Diya, Fatimilehin & Company, Mr. Tola Oyenekan, pointed out that most times, turnkey projects are usually broad, adding that the absence of the right contractors often makes the model unattractive and could trigger issues that might affect projects.

Oyenekan said some developers are still embracing the turnkey projects but not at a rapid scale because developers and project owners are now more involved in project execution and delivery than what was obtainable.

He called for improved professionalism and awareness regarding turnkey projects.

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