Special Report......

We would be approaching the given report in following sequence:

• First we thrash out about requirement or better say importance of this report where I will take
you how this report directing you to the importance and the opportunity lied in “Low Cost
housing”
• One more thing would be included is what Government is doing to minimise gap between
“Market Rate per square feet” and “Affordable Rate per Square feet”
• After words this report lead you to the major factor of fluctuation of rate of same size plot
between two different areas.
• What is the different reason which is leading to boost up that factor?
• After completing this, Report will lead you through the rate of all those materials which are
required for construction.
• Then This Report will fetch you to the Real objective of this Report that is:

“Real Cost of Construction of Reasonable House”

• Then there would easier way to understand this fumbling way of construction
• There would be Pie charts which would be explaining you total processes in three different
categories and those would be:
• Cost of construction stage wise
• Estimation of Cost of construction
• Approximate cost of construction
-Item Wise and Activity Wise
• Then by above Estimation we would be deciding a minimum rate of per square feet.
• So likewise Report would take you through different counter which would serve you
different elements of this Report Objective.
Real Cost of Construction of Reasonable House…….

Affordable Housing needs a Revolution

Affordable housing is today’s buzzword, with developers increasingly eyeing the lower-income and
middle-income segments. What’s more, it is also a national responsibility considering the colossal
shortage of housing for the masses in urban India.

Big is no longer beautiful - at least in the housing industry.

After ruling the realty business for many years, lavish and expensive apartments have now taken a
backseat to smaller and more affordable housing. Consider the fact that even players who
traditionally catered to the affluent, such as Unitech, Nirmal Lifestyles, Lodha, Hiranandani’s and
Puravankara Projects, are now turning their eye towards the lower and middle-income groups. The
reasons are not far to seek: a gloomy economy, stagnating housing market, dwindling investors and
falling demand for luxury homes. “Builders construct houses according to the demand prompted by
the economic scenario in the country,” reasons Anand Gupta, Honorary Secretary, and Builders’
Association of India (BAI). “And affordable housing is no new concept. Developers always
advocated it. However, certain factors, like land cost, expenses behind sanctions from various
government agencies, environmental issues, eviction of tenants and its political fallout, played a
major role in the sale price of flats. Further, the economic boom propelled by the IT industry
increased the demand for commercial and residential properties resulting in short supply and
consequent price increase.” Others believe the economic slump aside, it was only a matter of time.
“The shift had to happen as it had occurred in many other areas,” says a reputed developer who does
not wish to be named. “When mobiles were introduced, they were beyond the reach of the common
man; today, they are accessible to everyone. In the automobile industry, manufacturers are moving
towards smaller, low-priced cars. The same thing is happening in housing now. Market conditions
and competition dictate the trend.” Irrespective of what triggered the move, affordable housing is a
buzzword today. In fact, the Central Government set up a high-level task force in January 2008 to
study and submit its recommendations on affordable housing. The panel headed by Deepak Parekh,
Chairman, Housing Development Finance Corporation (HDFC), submitted its report in December
2008 to the housing minister. Although some of the recommendations put forward by the Deepak
Parekh Committee (DPC) clearly fall under the purview of the state government, impetus from the
Centre will definitely make states take notice, more so with general elections round the corner. What
remains to be seen is the intention of government - Centre or state - to implement the
recommendations. Indeed, if even some of the suggestions are put in practice, it would go far in
filling the cavernous gap that exists between demand and supply in this segment in urban areas.

Demand and supply

In urban India, the population is in-creasing at a fast clip and there is a colossal housing shortage.
According to the Planning Commission Report, the urban housing short-age in March 2007 was
around 24.71 million and is estimated to increase to 26.5 million by 2012 - 99 per cent of this
shortfall is in economically weaker sections (EWS) and low-income groups (LIG).
Approximately 42.8 million persons or about 15.2 per cent of India’s urban population lives in slums
with inadequate sanitary and drinking water facilities. The proportion of population living in slums is
much higher in metropolitan cities. And providing them adequate housing will be the biggest
challenge to the government. Commenting on the situation in its report, the DPC says that not putting
affordable housing as a priority of the development agenda is tantamount to demonstrating scant
regard to the basic living conditions of a vast majority of the country’s urban population.
Why is housing unaffordable?
Shortage of land and escalated land price are major bottlenecks to making housing affordable in
urban areas. Many industry pundits and developers point out that the basic cost of construction is the
same across the board but the primary factors that drive up costs are land prices and taxes. “As inputs
play an important role in the pricing of any project, the government must take the initiative to
provide land at cheaper rates for the development of affordable projects. There should be a rebate on
inputs required for development of these homes,” believes Rohtas Goel, Chairman & Managing
Director, Omaxe Ltd, Delhi.
But ensuring a steady flow of land is no easy task. As the DPC points out, “There are several
instruments currently in use to bring additional lands into urban use. These are the Land Acquisition
Act, 1894 and Land Revenue Acts of the States, which inter-alia relate to conversion of agriculture
lands for urban use. Additional lands also come into the market when rural settlements acquire urban
status. Both acquisition of land and conversion of agricultural land for urban use and its development
and release into the market have been arduous (hard) and time-consuming processes.” It adds that ill-
defined policies through overregulation create land shortages and distortions in the land market,
leading to price escalation.

Affordable but afar

As a result, affordable housing projects are now being planned largely on the outskirts of cities and
metros. “Unfortunately, land is available only in areas far away from the city,” affirms Gupta. “The
government should develop proper infrastructure with good transportation facilities to attract the
urban population to these projects.”

There are many such projects in the market today. For instance, Matheran Realty Pvt Ltd (MRPL)
launched the Tanaji Malusare project in Karjat last year. This 4-million-sq-ft township featuring all
facilities will have 10,000 homes ranging from 300 to 550 sq ft - priced at Rs 999 per sq ft. Delhi-
based Omaxe Ltd plans to develop 1 lakh affordable homes for low-income consumers across India
through its group company National Affordable Housing and Infrastructure Ltd. To be priced
between Rs 3 lakh and Rs 15 lakh per flat, the projects will be initially launched in Indore, Sonepat,
Neemrana and Bhiwadi.
Government Initiatives
At the same time, government introduced favourable policies for addressing the urban housing
problem. Affordable housing became the Indian government’s new mantra. It introduced the Bharat
Nirman project, to double the construction of low cost houses to 12 million units. Under the Rajiv
Awas Yojna scheme, it has rolled out a massive plan to build 5 million dwelling units in five years to
house 6 crore slum dwellers. It has allocated Rs 225,000 crore for this purpose (Rajiv Gandhi Yojna,
2009). This has become a tremendous business opportunity for real estate developers entering the
low cost housing programs. There were two reasons for this government initiative. One was its vision
for slum free India.
Second was to boost the demand for steel, cement and construction material as part of its fiscal
stimulus plan.
Further, government introduced an interest subsidy of 1 per cent for one year on loans up to Rs 10
lakh for properties worth less than Rs 20 lakh (FM's new subsidy, 2009). It also earmarked housing
loans up to Rs 20 lakh to qualify as priority sector lending (FM's new subsidy, 2009). All these
measures were intended to boost housing demand in the low income segment.

Low Cost Housing:

Thus the economic downturn and the government push have led to the emergence of low cost
housing as a viable and inevitable business opportunity. Low cost housing is used to describe
dwelling where the total housing costs are affordable to the group of people within the “low income”
bracket. It must be noted that the price range, and hence the income level is not clearly defined.
Different players are targeting different price points which has actually amounted to targeting two
distinct segments - middle income segment (Rs 10-25 lakh) and low income segment (Rs 3-8 lakh).
While there are significant opportunities in both these segments this report chooses to analyse the
low income segment and the responses of various market players. This focus is driven by the sheer
size of the business opportunity (~Rs 13, 00,000 crores) which has been largely untapped, and its
high social impact. This trend towards low cost housing harbours a paradigm shift in the real estate
industry and has the potential to displace the existing business model. Real estate developers would
need to fundamentally alter their operating model in order to succeed and sustain.

For constructing particular house we need to have all those materials which require for that and for
that matter here is a table of all these material require building a particular house.
One more thing there are some cost by which we can differentiate a rate of per square feet rate of a
particular house there are couples of factor effecting to the enormous fluctuation of rate of different
types of property likewise:
• Residential
• Official
• Plots
So now let’s have glimpse on the factor effecting to the major fluctuation of rate of above mentioned
property:
• Development of that particular area
• Standard of living of that area.
• Average income of respective area’s crowd
• Future project announced by government of that particular area.
• Types of people.
• Environment of that area.
 • Facility provided to that area.
So above mentioned are some of the major factor which do play major role in fluctuation of rate of
land. Land would be the major factor for differentiation between rates of two different areas
area with
same size of plot or flat.

Cost of Construction:
Here I have made easier to understand the whole construction expenditures distribution. These pie
charts would be covering all those cost or better way would be reasonable cost:

So let’s start with first pie chart...

Cost of Construction Stage wise:

These are the seven major stages which are effecting drastically on cost of construction

Excavation,
vation, concrete for foundation & Plinth:
This cost would be related to all those “bases” or say “supports” that is related to construction. This
would be one of the elements in cost of construction.

Superstructure Concrete & Brickwork:

This cost would be dealing with concrete and bricks that would be using in the construction work and
also plays an important part for
or being one tthe stages in the Cost of Construction.
Flooring:
This has to be a part of construction as we all know so I won’
won’t go much in details and say only that
this would be a part of Cost of Construction.

Plastering & Painting:

As we all know this is also obvious eexpense
xpense of construction so this is also part of one of the stages
cost of construction.

Doors, windows & Woodwork:

This is also one of the parts of cost of construction and playing major role in cost occurring for
construction.

Water supply, sanitary fittings,gs, Electrification and others:

This cost would be occurring at the times of construction and after for the supply of water and other
added features of cost would be electrification in which wire fittings and switch boards and lights so
all those electric materials and others would be bath tub then showers and all those things. So these
all expenses are also playing major role in Cost of Construction.

Now another pie chart would be called as major cost of construction and may not the exact figure in
percentage
age and would give you a fair idea about that particular cost.

Estimation of Cost of Construction:

So here cost has been divided in three different parts where as mentioned in chart:

“Material cost” would the highest cost occupying 60% cost (Blue) of construction. A part from this
there is another cost which is half of total cost of material cost and that is “Labour Cost” and is
attaining 30% part of total Cost of Construction and At llast
ast 10% has been occupied by other cost
which would be paintings, plumbing then electrification etc. so these is the major distribution of fair
estimation of cost of construction.

Approximation of Cost of Construction:

Here are the Approximation of all cost which is related with “Item Wise” and “Activity Wise”
among which major of them has discussed in above point and other would be mentioned over here
here:
§ Cement: 10-14%
§ Bricks: 8-10%
§ Labour contractor for concrete: 66-10%
§ Doors and windows frame: 66-8%
§ Stone Aggregates: 4-5%

§ Design and Fee for engineers and Architect: 33-5%

§ Soil: 1-3%
§ Water: 0-2%
§ Layout and excavation: 2-4%
4%
§ Sand: 3-5%
§ Steel Rods: 4-5%
§ Shuttering and Frameworks: 22-4%
§ Bore well: 2-4%
§ 8%
Plumbing and Sanitation: 6-8%
§ Electrical works: 4-6%
 § Flooring: 3-7%
§ Painting: 6-12%
§ Bounary wall and Main gate: 1-3%
§ Others: 6-8%
So these all are the cost and their respective estimation of expenses.
Now, After concentrating on different approximation now let’s move towards the real prices of that
materials which are being used by the construction companies and also would be comparison of those
rates with current rate and past rate.
So under mentioned table give you a brief about those rates.

Table Describing All Current Rates:

MATERIAL LAST WEEK THIS WEEK

CEMENT PER 50KG RS.250 RS.250
STEEL
` RS.32,900 RS.33,900
TMT 8MM dia RS.36,000 RS.34,300
TMT 10-25 dia RS.34,750 RS.33,000
RMS (ready made steel) RS.43,000 RS.43,000
STIRRUPS RS.44,000 RS.44,000
VSP/ SAIL RS.41,100 RS.41,100
BRICKS 300 NOS RS.41,100 RS.41,100
RIVER SAND RS.22 PER cft RS.22 PER cft
BLUE METAL (MATERIAL NOT FREELY AVAILABLE)
20 MM RS.24 TO RS.26 cft RS.24 TO RS.26 cft
40 MM RS.22/-cft RS.22/-cft
BITUMEN AT I.O.C
GRADE 80-100 RS.32,165/-MT RS.31,522/-MT
GRADE 60/70 RS.32,117/-MT RS.32,474/-MT
SIZE IN (mm) SOLID BLOCK M-15
CEMENT BLOCKS 400*200*200 RS.34.50 RS.34.50
400*200*100 RS.20.50 RS.20.50
LABOUR
MEN RS.250 TO RS.300 RS.250 TO RS.300
WOMEN RS.200 TO RS.250 RS.200 TO RS.250
PAINTER/PLUMBER RS.400 TO RS.450 RS.400 TO RS.450
CARPENTER RS.400 TO RS.500 RS.400 TO RS.500

Source: Builders Association of India (Southern Centre)

Courtesy: * The Hindu Property Plus dated 29th May 2010
Link: http://www.anytimeproperty.com/index.php?pg=construction_costs
Barriers to business
There are several challenges facing the low cost housing sector. Notable among them are as follows:

Availability of land
The land requirement is quite high given the volume requirements of this business. The land on the
outskirts is cheap but there is a concern of lack of adequate transportation facilities connecting the
main city to the outskirts. This may increase the risk of the projects and decrease the attractiveness of
the project to prospective home buyers. However under the slum redevelopment program, significant
amount of land may be freed up for development.

Regulatory restrictions
A significant barrier to low cost housing is the government FSI regulation. FSI is the ratio of total
floor area of buildings on a certain land to the size of land. For example, the stipulated FSI for many
locations in Mumbai is 1, while world over this ration ranges between 3.5 and 18. Low FSI implies
land cost becomes a large fixed component of the developer’s costs, making low-cost housing
projects financially unviable. (Banerji, 2009) Stipulation on FSI also implies that low-cost housing
projects have to be undertaken far away from the business districts in the major cities. In such cases,
availability of basic infrastructure such as electricity, water etc. and transport facilities such as roads,
bus stops etc. become limiting factors that reduce project attractiveness. The idea of low-cost housing
is to provide target customers with affordable houses with proper infrastructure, and located at
reasonable distances from their place of work/earning livelihood.

Availability of finance
Another important factor in the success of low-cost housing projects is availability of finance, both
for the customer and for construction. The housing finance companies too have realized the
magnitude of this opportunity. As a trendsetter, HDFC has picked up 10% in low cost housing
developer Value and Budget Housing Development Corporation’s (VBHDC) housing projects (Jerry
Rao's Fourth, 2009). This has ensured easy availability of construction finance as well as customer
house mortgages for VBHDC’s projects. Many Micro-Finance Institutes (MFIs) are also venturing
into this space to provide housing finance to buyers.
Offering and Market Potential

Market Segment

6%
9%

Premium Segment
Middle Income Segment
Low Income Segment

85%

Here above diagram is showing us the need lying in “low Income Segment” .

Let me show you one more aspect of Market Offerings:

Premium Segment:
• Price of Unit: Rs.25 lakh.
• Potential Demand: 2 Million
• Market Size: Rs.500,00,00,000

Medium Class Segment

• Price Unit: Rs.10 to 25 lakh
• Potential Demand:5 Million
• Market Size:Rs.900,00,00,000

Low Class Segment

• Price Unit:Rs.3 to 10 lakh
• Potential Demand: 21 million
• Market Size:Rs.1300,00,00,000
Rs.1300,00,00,000

Resource: Adapted from: Monitor (2009), “The recession proof business opportunity in low income
housing” p. 4

So you yourself can see the opportunity lying in Low cost segment...
This would be my conclusion that would make you think on this my topic.....