The Hindu Business Line : Developers cutting out frills

Builders are extracting more value from projects at lower cost, without compromising on quality — which means sticking to time schedules, greater use of technology, no more design flourishes or costly architects and consultants.

— M. Balaji

Sticking to basics.

R. Balaji

Developers resigned to the increasing costs of construction are now hoping to save on expenditure to protect their margins. The easy option of passing on additional costs to the buyers is now not available in the face of slow sales of residential units across most cities.

With the prices of major inputs, including cement, steel, aggregates and labour, increasing, their options are limited. But they cannot afford to wait for the market conditions to change.

Time is one key factor in saving, they say. Speeding up project completion contributes to reducing costs. Other ways to save include value engineering and sticking to basics in design — that is doing away with the ‘bells and whistles’ as one developer put it. No more flourishes in design, no more costly architects and consultants, they say.

Escalation clause

While acknowledging that increasing the sales price is not an option, developers are examining ways to transfer further increases in cost of cement and steel to buyers through an escalation clause in the purchase agreement.

The agreement would provide for price escalation or decrease linked to steel and cement prices.

Under the existing conditions, this proposal meets with stiff resistance not just from the market but also the marketing department within the company, says a developer!

But an escalation clause is on the cards and developers in Chennai, Bangalore and Mumbai are examining the options and working with lawyers on how to go about it, according to Mr K. Murugesan, Vice-President, Confederation of Real Estate Developers Association of India, and Director, True Value Homes India Pvt Ltd. He expects that the escalation clause would be in place in the next couple of months.

For now the options are primarily austerity measures — cut back on any expenditure that can be avoided, says Mr Surendra Hiranandani, founder of Hiranandani Upscale. Developers will look across the board in material and design to cut back on costs, slow down on expansions and bring down waste. Designs would have to be more functional. The challenge would be stay within the budget. Saving on time is the biggest cost factor.

USING Technology

Mr R. Kumar, Managing Director, Navin Housing and Properties Pvt Ltd, says technology holds the key to savings on time. Most large developers expect aluminium form work system, involving use of concrete for the entire structure, to become the norm in the coming years.

This does away with manual brick laying and plastering because the entire structure is essentially poured concrete. Speed of construction would increase three-fold. Each floor could be done in a week as compared to three-four weeks using conventional systems. A three-year project could be completed in one year; a significant saving, considering that the cost of construction has gone up by 40 per cent in the last one year.

Also, with the cost of funds between 15 and 30 per cent, developers can save big.

How about the savings in the short term? Mr Ajit Kumar Chordia, Managing Director, Olympia Technology Park, says significant savings are available with small changes in style and design of operations.

His immediate target on cutting costs is to primarily neutralise the increase in prices of cement and steel over the last one year.

That means bringing down the cost of construction by Rs 150 a sq.ft. On average, developers use about 4 kg steel for every square feet and about half a bag of cement. Value engineering is the key to bring down cement and steel costs in a project without a compromise on quality. They are going back to the drawing board for a second look.

Areas of saving

He details some areas of saving. They include:

Use of high performance steel (FE500) in the columns where normally FE415 was used. This means that steel consumption comes down by 7 per cent. Even allowing for a 1.5 per cent increase in the cost of steel, the overall reduction in steel cost would be close to Rs 15 a sq.ft.

Using specialised steel rods would mean that 7mm rods can be used in place of the conventional 8mm rods. This is one more area of saving.

Flyash bricks will be made on site, and that would help bring down the cost of a brick to Rs 20-22 against Rs 30 if bought from a third party.

No more fancy work from foreign architects and consultants, who can cost as much as Rs 30 sq.ft. This work when done in-house can help cut cost by half, he says. There is a Rs 10 a sq.ft saving on just doing away with the non-essentials.

No more stainless steel railings in buildings, settle for mild steel;

No structural glazing; and

Landscaping: Nothing fancy. Some budget for about Rs 15 lakh worth of plants supplied by landscape artists, this can be cut down to a third if the planting material is available in-house. Mr Chordia says he is planning to set up a nursery instead of going to a third party.

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