Saturday, February 27, 2010

The Budget & Common Man's Cheaper Home Dream!

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The Budget & Common Man’s Cheaper Home Dream!

With each budget we eagerly read for any news about the homes as millions in this country home is an ultimate buy, its not just dream or passion, its need! And unfortunately no budget head line has ever said The Budget Makes Homes Cheaper! Is it that deliberately it’s not being done so the political, autocrats & builder’s famous nexus keep all the cake & eats it too always! Most of the common men will think it in that way but have we ever thought of reality? I am not any authority on the budget or the provisions, but last 20 years I am in the construction rather builder line & am an engineer too, so what I feel is we have never gone to the root of the cause!

First of all see these funniest things...We need to analyze the home prices & for that we need to identify the factors supporting the same. A home is made up of Land, Material, Manpower, Machinery & Buying power of the customer. One major hidden factor is buying power of the developer too. We have to go through each factor, scenrio in the field & how budget can make the difference about the same.

The most important ingredient in housing is land, this we all know. It accounts nearly 4/5th to 2/4th factors in Metros like Mumbai/Pune & 1/3rd in town or district places. Here land means we are talking developed land with the entire infrastructure. Especially when we can’t produce the land in any factory? Now there is Income tax dept which keeps tap on dealing of the lands, some 7/8 year back there was a law 37 I, which makes any real estate deal mandatory to take noc of the IT department. This was being done to avoid the showing of low property valuation of the deal. This act gave power to the IT dept is the deal is shown lower than what market price is then IT dept can acquire the property at the rate mentioned in the deal. So there was a control on lowest rates. Ok? Now we have IGR (registration office) which decides the minimum transaction value of any real estate & we have to pay stamp duty on the same.

Have we ever thought of having cap on the upper rate of land rate? Have we ever thought of doing that? A land lord is free to sale his land at his will, he can hold the land till he wont get the price he want or else he can hold the development of that much land! Have we got any law for that? The ULC was meant for it but we blamed the same law for making land prices higher & squashed it.

The budget should have had the strategies to make more & more land, developed land available for the housing. Leave apart new land but the lands under various regional plans/ developments plans also if gets under the development then the more supply will help in reducing the land prices. The union govt can make the state govt to comply the implementation of DPs/RPs at stipulated time. Things such as basic infra activities like road networks, water supply schemes, drainage line, power grids must be given utmost importance. The local govt should get their part of budget provisions only after showing improvement on providing the infra development.

Then there is sanctioning process for the existing developed lands & the documentation part of it. The more the time span involved the more is the interest burden on investment & naturally the reflection is in home prices. In city like Mumbai it took over year to get the plans sanctioned & in Pune it’s nearly 6-7 months! Many won’t like & I don’t blame them, but it’s the system we are talking about & not the persons. Simple things like abolishing the system of obtaining NA permission for the developments in residential zones can reduce the time span by months to start the project! And the budget should comment on such practices or urging local govts to adopt such.

Next factor is material. Presently average building construction cost & I mean a good durable building of height 7 storied costs approx 1200- 1300 per sft & its pure construction cost. Many may think differently but this is my person experience, I can prove it & again the costing is before this budget :)
Now here too there isn’t any regulation on the price hike, especially cement. We have literally monopoly in this segment & hardly 4-5 companies controlling the rates. Basically housing isn’t their main clientele as out of total production the housing part may not be even 10% consuming the cement. As major part are dams, roads, public segment developments & things like that. Yet in housing the cement is key factor accounting 100 /- per sft of the cost. And any change here directly affects the cost in the same percentage. Even without the budgets the cost of cement keeps on varying as the demand supply factor makes the controlling companies to keep a close tap on prices, making housing industry suffer. Except the rcc/ concrete all other uses like masonry, plaster can use lower grade cement but there also no R & D is being done &the major type of cements used i.e. M50 & M40 has not much difference in costing. And many a times non availability of cement of 40 grades makes the developer to go for 50 grade cement which is not at all required for those jobs. Last month only the sand prices & metal prices have shoot up. The whole segment is controlled by local leaders at most places, especially the river sand & quarries. There aren’t any criteria about their pricing & the local govt neither interferes in the same nor about the stock holding by individual.
All these can surely reduce the pricing by nearly 100/- per sft & it’s a substantial save I must say!

The budget can make lower tariffs on transportation of cement/steel type things. Also the fly ash which if blended can make the prices down, isn’t available in all states & again the transportation costs makes it impossible for use. Here to polices are required for making use of such material possible all over the country. Similarly a home is made of so many ingredients from lifts to generator to electric switches. This industry has very poor R & D establishment, where cheaper products can be worked out for mass scale use, the budget should encourage that.
Same is applicable for eco friendly products like Solar & Light fittings like LEED lamps. These things need to be subsidized & promoted. Even the construction tariffs of electric supply have to be reduced. The basic ingredients like sand, metal (khadi) & bricks are age old now & we haven’t tried to make any option for the same. The fly ash bricks are costly & so as low weight blocks like siporex. They are costly by at least 3/4 times so developers are not using them & developers are not using them and that’s why production is less. The budget needs to take cognizance of such bottlenecks & make the provisions accordingly for alternative use of material.
Water is another important factor in construction. Not many will believe but in metros the water takes nearly 6- 7 /- per sft of the construction cost. Why can’t municipal bodies erect water recycling plants & sale this water to the developers to reduce the use of clear water & save on costing.
On Eco housing about the provision & policies for the same the budget is exceptionally silent. Simple things like reducing the tariffs for water recycling plants & reducing taxes on such plants isn’t even thought of & we talk about promoting eco housing!

Then comes the labor issue. Rather this is the most unorganized segment & wages may be lower than any of other industry, same is the output. Skilled workmen are getting scarce day by day & their costs are increasing. And on other hand so many of them are ready to deliver at cheaper wages but the out put at end makes the product more costly by maintenance as well time involved. Their are institutes like ITI's but they mainly trains industry trades, the need is a mass scale network of training institutes who can generate masons, plumber, carpenters, fitters, tilers & workmen like them. And this has to be done at practical level & at cheaper expense, as more & more are turning to the civil industry because it requires least skill! This all adds to costing of a home. The budget should take this aspect in consideration & makes provision country wide for the same. Presently the labor/material % in costing is 40/60 and one can imagine if we increase the work output then how much saving can be done!

About mechanization, it can save the great time & indirectly costing. But here to no thought has ever given to encourage the construction industry especially the housing, to upgrade use of modern equipments. Making the time span for average projects ranging from 24 months to 30 months. Imagine if we can save it by even 6 months, what can be the savings!

The issue of buying power of the customer plays imp role in any industry & fortunately its better scene over here. Though the loan procedure & giving lowest rates for smaller homes should be simplified. Same should be done about eco housing to promote it & fast.
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When we come to financial infrastructure to the developer, joke is there are number of Banks, HFI’s to finance the end user but no body is interested in financing the developer except for those who are big fish. Agreed there may be some restrictions or hurdles but that’s what a budget is for, not just making provisions but making people to utilize those provisions. The middle or smaller segment of developer has to buy the land from his own pocket or with the assistance of private financers i.e. loan sharks! This makes the land factor immensely costly because their interest rates are 18-30%! Again naturally this burden gets transferred to the common man, seeking for home.

Some may feel I am asking all about builders benefit but lets remember no developer is in for charity, so naturally like any business all that’s coming on the head of business is bound to pass on to the end customer & its true with any business. A home should be considered now essential commodity & ten only we can plan the policies for making it affordable to those who really need it. As till we don’t control all above factors we won’t be able to control the end products price i.e. a home!

Now can’t we do any thing for this? Frankly I don’t know the procedures about budget making, but its surely not one night dream by the FM, so why cant right from media to the consumers forums to various developers organization at least shake the FM up right from the beginning of the financial year! At least put the representations on the record & show the efforts, which I feel is not being done. As they say in Marathi " Bail gela an zopa kela" i.e. what’s use after the bull has gone by destroying your field! So what’s use in commenting after the budget got declaired, its every man's job & not just one FM's. As they say we get what we deserve by our own selves only :)






Sanjay Deshpande

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