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- Real estate sector to be hit as construction costs up 18%
To receive timely possession of apartments has become a distant dream for most home buyers
The increasing construction costs are expected to hit the real estate sector, says PropEquity, an online data and analytics search platform covering the Indian real estate industry, in a recent study.
“Taking into account price increase of the four key construction components - steel, cement, labour and bricks - there is an 18% gross rise in construction cost over the last 2 years (2011 over 2009). This escalation will corrode the profit margins significantly,” PropEquity study says.
The impact of increased delivery commitment along with escalating costs will affect the delivery of residential units on time. It is estimated that delivery of 480,000 residential units across affordable, mid and luxury housing segments, scheduled for completion during 2011-13, will be delayed in the 11 cities, the study says.
As a result, developers are likely to lose interest in projects, making delays in project execution inevitable, it adds.
PropEquity has conducted an extensive study of the construction delays in real estate projects and the impact on the industry. Data points covering over 10,000 projects being executed by over 1,500 developers across 11 cities in prime residential locations have been studied to arrive at the trends contained in the research report.
The cities that were included in the study were Gurgaon, Noida, Greater Noida (North); Mumbai, Navi Mumbai, Thane, Pune (West); Bangalore, Chennai, Hyderabad (South); and Kolkata (East).
To receive timely possession of apartments has become a distant dream for most home buyers. It is a sad state of affairs, with even projects promoted by the biggest names in the industry witnessing delivery delays much beyond committed timeliness, study said.
Delays in projects result in cost over-runs and a dilution of customer confidence, thereby multiplying the challenges for the developer. The past year-2010 can be regarded as a good phase for the residential real estate markets with absorption levels scripting a recovery with a huge price appreciation after the Lehman crisis in late 2008.
This recovery, though initially driven by affordable projects also witnessed healthy participation from the mid and premium residential segments more recently. The last 2 years have witnessed many developers selling a large volume of units, much larger than what they have sold and executed in the past.
This draws attention to the fundamental issue of execution capabilities, questioning the capacity of players to successfully execute on time and to the committed specifications. This assumes greater relevance since a majority of the delivery commitments are in the affordable segment with relatively thinner margins and in an environment of escalating input costs
- This is a serious issue!!!!!
Bad news for under construction properties. I think that long delays in any project may face the big problem of Stalled project in future. Investor must have to be more cautious while investing in under construction properties. If any project is launched by any NEW BUILDER at this time as per today market rate, and due to less booking or any other reason if that project actually starts work after 2-3 years (this is happening in several NCR societies) then chances of being Stalled such projects will be much high in the middle of structure due to increased cost of construction near about 25-40% after 2-3 years.
I think this problem of STALLED PROJECT may happen in several NE properties which are still launching just at 1530 PSF rate to capture new buyers in current disputed scenario. After paying huge land cost (extra compensation) I don't think any multistory society can be finished completely just at 1530 PSF rate when actual speedy work of society will be started with 2-3 years delay.CommentQuote0Flag
- Originally Posted by saurabh2011Bad news for under construction properties. I think that long delays in any project may face the big problem of Stalled project in future. Investor must have to be more cautious while investing in under construction properties. If any project is launched by any NEW BUILDER at this time as per today market rate, and due to less booking or any other reason if that project actually starts work after 2-3 years (this is happening in several NCR societies) then chances of being Stalled such projects will be much high in the middle of structure due to increased cost of construction near about 25-40% after 2-3 years.
I think this problem of STALLED PROJECT may happen in several NE properties which are still launching just at 1530 PSF rate to capture new buyers in current disputed scenario. After paying huge land cost (extra compensation) I don't think any multistory society can be finished completely just at 1530 PSF rate when actual speedy work of society will be started with 2-3 years delay.
very rite ..one should invest in projects which are 60-70 % sold out may u get higher floor ..but u will get the possesion on time..n higher floor is not bad ..people will realize this once all these multistory get delivered in noida...
- as input costs rise with time, and buyer's payment comes with construction, doesn't it make sense for builders to finish their projects fast to save on construction cost and interests and delay penalties?CommentQuote0Flag
- Originally Posted by pravinchaudharyas input costs rise with time, and buyer's payment comes with construction, doesn't it make sense for builders to finish their projects fast to save on construction cost and interests and delay penalties?
Sab kuch waisa kaha hota hai jaisa har koi chahata hai. Booking in the society must also be good for starting & finishing the work. Mostly builder start work in any tower only if 50% booking of that tower has been done because in that situation after collecting maximum 25% booking+first installment amount it collect around 12.5% cost of that tower , and just basement development of that tower require 15% cost of total cost of that tower. So for starting any tower work at least 50% booking is required to start work.
Speedy work of projects in any area also shows that booking in that area is going on very well. Few person says that BOOKING IN NOIDA region is very high & all person of NCR only want to purchase only in NOIDA, then let me know why construction speed of societies are so slow in any NOIDA region and taking more than 5 years to finish the society. Few person say MNC / IT jobs are only in NOIDA however ground reality is that only 20% of whole NCR IT/BPO job are only in NOIDA, and next more important points only 10% public of NCR do IT/BPO jobs rest 90% public of NCR have nothing to take from IT JOBS , not a single BIT. Supply in NOIDA region is much more then the actual END USER demand and however at this time investor is also purchasing a lots in NOIDA region but once Honeymoon period goes down then it will be interesting to see what will happen.CommentQuote0Flag
- Real Estate Developers Setting Prefabrication Plants to Cut Project Costs
Real estate developers are setting up prefabrication plants to speed up construction and cut project costs as an acute shortage of labour and a rise in raw material prices threaten to wipe out the industry’s already wafer-thin margins. Between 2009 and 2011, labour costs have risen 50% while prices of raw materials-steel, cement and bricks-have grown 25%, but developers are betting on the use of prefabs, which promise to save a third in construction time and 10-15% in costs over the long run. “This (labour shortage) is impacting delivery of projects and escalating costs,” says Godrej group chairman Adi Godrej.
According toresearch firm PropEquity, nearly half of the 930,000 under-construction residential units scheduled for delivery between 2011 and 2013 are likely to be delayed by up to 18 months. In the current market, where margins are thin and customer sentiment is low, developers cannot afford project delays. “To improve the situation, we need to bring in more technology like prefab structures,” says Godrej. Prefab technology, now adopted by a number of developers in the south like Janapriya, Supertech, Brigade group and Trigunaas Build-Tech, involves making concrete walls and slabs at a manufacturing facility, transporting them to the construction site and then installing them.
India’s construction industry is projected to face a labour shortage of 18-28% if the country grows at a medium rate, according to a recent World Bank report. Moreover, the success of the government’s flagship job scheme, the NREGS, has reduced labour supply in large cities.
Janapriya Projects, which was facing labour shortages for quite some time, decided to use prefabricated walls in its latest project, the Lake Front township in Hyderabad. As a result, the project is now almost four months ahead compared to the construction time using the earlier method. “Earlier, we were unable to meet timelines and costs were spiraling due to high labour costs,” says K Kranti Kiran Reddy, executive director at Janapriya. In October, it signed a technology deal with Finland-based Elematic for setting up a prefabrication unit, which now produces 5,000 sq ft of wall area a day. “We are using 60% less labour in the Lake Front project now.” Though companies building low-cost housing have been using the technology successfully, now developers like Janapriya are using prefabs to develop affordable and mid-income housing.
“It makes more sense to use prefabricated structures for large developments,” says Harleen Oberoi, executive director, project management at Cushman & Wakefield. Noida-based developer Supertech is investing Rs 200 crore to set up a pre-fab plant in Greater Noida and has raised Rs 50 crore debt from ICICI Bank . “We plan to use pre-fabricated walls and slabs for our mid-income and affordable homes projects,” says Supertech managing director RK Arora. “The reduced construction cost will help us keep our selling price low. Otherwise it is difficult to compete in this price range,” says Arora. He and his team had visited a construction site in Malaysia last year to see how the prefab technology works. “Only five people working at the site: one man on the crane, two helping him load the prefabs and two to install them on the building.”
Says Trigunaas Built-Tech project manager Bima Rajesh: “We are importing prefab moulds from Malaysia and Germany for our low-income housing projects. Now we are setting up a plant so that we can tap the growing market for affordable housing.” Using prefabs, three floors can be built in 45 days as compared to a year taken by the conventional method, says Rajesh. Malaysian firm Plastek Industrial System is partnering Trigunaas in building the plant, which will cost Rs 200 crore, Bangalore-based Brigade group is currently negotiating with a Singapore-based prefab company to design and manage a plant for it. “We are looking to set up a captive production plant (at a cost of Rs 15 crore) for affordable homes in Bangalore ,” says Kailash Advani, CEO, BCV Developers, a subsidiary of Brigade Group.
Real Estate Developers Setting Prefabrication Plants to Cut Project CostsCommentQuote0Flag