Real estate companies are becoming more efficient in project designing and even procurement strategies. They are trying out new strategies improve margins. While some are procuring expensive capital goods directly from manufacturers, others are going to China to get high quality yet cheaper material. Real estate developers have seen their margins shrink progressively in the last one year with input costs going up tremendously. Input costs (cement and steel) have gone up at least 20-25% in the last six months. Margins for developers were high in the 60-70% range for most real estate projects (and over 100% in some) a couple of years back. Today, they are down to about 30-40% across India, says Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM).
This reduction can be attributed to higher cost of construction, labour, land and other input costs apart from the higher cost of capital. This has forced many developers to look a little closely at various aspects of their processes, something many ignored when the going was good (extremely good). Some smart developers are utilising economies of scale. “Developers are clubbing projects while procuring to get better rates,” explains Ravindra Singh Verma, director, development projects, project management, Cushman & Wakefield. To save on cost, developers are also now going for direct procurement of big-ticket capital goods such as chillers, diesel generators, glass and even tiles in case of residential projects. “Going for direct procurement from manufacturers can help you save 10-15%,” says Saxena.
Courtsey: Indian Realty News.com
Real estate companies are becoming more efficient in project designing and even procurement strategies.