Financial institutions and banks seek for innocuous opportunities with reliable developers as lending to construction industry is a big platform for investment for banks. The source also adds that the developers do not use their money and this is how the industry works across the globe and another reality is that financier with abundant money will not press for repayment plan; hence there is no tendency to decrease prices for a short while.
Before the promotion of a project, it is subjected to numerous procedures like construction cost, manpower cost, resources cost, inflation, regional variations, approvals and accompanied by many other horde of issues.
Based on all these and other factors the final cost of the apartment is estimated. To help the buyers to understand better about what they are paying and to empower them to plan according to the budget, here is a wide representation of the pre-calculation information followed by developers. Usually, a project is sold at a margin of 18 to 25 per cent and developers sustain about 30 to 40 per cent as land cost and construction cost of 30 to 40 percent based on the location of the project.
One of the sources says that as 60 to 80 per cent of the cost is acquired by the developer they don’t hesitate to reduce prices during low sales. On the other hand, the buyer should also know that a trustworthy developer embarks on huge work to make sure that paper are valid with no lawsuits or legal proceedings and other facilities are available like access to plenty water, sufficient manpower during constructions and several other approvals during construction.
In case if advanced land development and construction, a part of the cost is taken care through pre-launch offers and loans that gives freedom to the developer to continue the construction and take care of debt finance. There are cases where developers have often reached a point of balance making either a profit or loss.
The marginal profit also varies according the housing type, like luxury projects will have larger margins then followed by the mid-segment and the profit from the affordable segment is mostly from the bulks. Therefore, in the long run price corrections can be expected in projects where the margin is 25-30 per cent and usually uber-luxury projects in the price range of Rs.8, 000 per sq. ft. or above falls in this category.And, drop in prices in mid-segment projects in the range of Rs.4, 000 per sq. ft. can happen slightly and depends on the negotiation knack of the buyer.
Prices are likely to remain steady, as property investors will not draw back for another 5 to 10 years and based on an inflation of about 7 per cent and the drop in the value of money, the actual cost can decrease.
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