Affordable Housing: How Can Developers Optimize Costs?
A market that has come into its own over the last few years is affordable housing. This is partly attributed to many government schemes, including the approval of industry status to affordable housing, the Pradhan Mantri Awas Yojana (PMAY) scheme, and the project of Housing for All by 2022.
The Union Government initiated the PMAY in 2016 to create 20 million homes in the country with the dream of accommodating the urban poor and providing shelter to the lower and middle-income classes. In 2018, Punjab Cabinet also affordable housing policy aimed at offering higher density and floor area ratio (FAR) to the promoters who were keen to develop an affordable colony.
Currently, the Punjab Department of Housing and Urban Development released the Punjab Affordable Housing Policy 2020, a new regulation that abolishes the previous legislation promotes affordable housing for the state’s lower- and middle-class residents.
Even after all these efforts to push housing, there remain to be problems facing developers at the ground level, however, which hinders their intrusion into the real estate market. These include land scarcity, lack of clarity with respect to property records, unfavourable industry dynamics, socio-political control, and shortage of skilled labour over the life cycle of the venture. Especially in the present time when the whole world is affected by COVID-19, real estate is no exception.
In fact, it is in affordable housing where developers need to concentrate on cost optimization in order to maximize the bottom line. Cost optimization is nothing but ensuring that the cost of the project, over the development phase, remains below the budgeted cap. When it comes to cost optimization, there are many variables to remember.
Developers need to take into account many considerations before controlling expenses, such as planning and designing, research and development, input materials, manpower, and time. We at SBP Group will help you in understanding these factors in detail to help you in optimizing cost.
Planning and architecture: In deciding the project’s budget, the initial stage is critical. In project cost control, a nice, sustainable, and easy-to-construct design without any complicated elevation characteristics that satisfy construction requirements and environmental factors within manageable limits is key.
Research & Development: Before starting any construction constitute an R & D department that will help. Further decreases in costs can be ensured by building construction methods and the use of better and more economical materials. In order to optimize costs without compromising on consistency or structural integrity will require proper research and development. Modern technology, such as aluminium formwork, is widely used worldwide.
It is also important to analyse precast construction technologies and ensure that the construction is done within the period stipulated. The concept of making carbon bricks, which was suggested by students of the Massachusetts Institute of Technology, USA, or also Meghalaya’s plastic path, are other examples of cost optimization by research and development.
Materials for input: Value engineering plays a significant role in cost-efficiency in the production of products at reasonable prices without sacrificing consistency and reliability. Innovative content recycling concepts may be a key component of cost optimization, without losing the designs look of the finished product.
In the current situation where due to lockdown, the supply of material is affected to a great extent, developers should try not to let it affect their construction quality. How good is raw material management & overall planning of a developer is can be seen in such a circumstance. They should always make sure that no compromise is made with quality & yet the cost is as per their budget.
The productivity of labour/ skilled labour: India is known for providing skilled labour at very less cost, which is why many big corporate houses set up their businesses here. Developers should also take benefit of this in controlling their cost. In ensuring cost optimization and prompt execution of a project, skilled labour is essential.
To strengthen the labour force of the country the government has come up with the ‘STRIVE‘ (Skill Strengthening for Industrial Value Enhancement) program, sponsored by the World Bank, to acknowledge this need. For greater efficiency, this is being applied and may assist the industry in cost optimization.
Time Duration: This is also a significant consideration, as it helps to analyse possible schedules and pick an optimal one, taking into account the completion date of the project. In terms of interest rates, delays in ventures inevitably lead to cost overruns, increasing the expense of supplies and manpower. Cost optimization is based on the basic task of eliminating or reducing waste from the five M’s of production: man, material, money, machinery, and methods.
With the implementation of RERA 2016, developers as well as consumers have been benefitted. It has reduced the rate of delay in possession of projects. With having a government authority watching over builders, the projects have been getting completed in time saving the expense of delay as well as penalties.
As it has been seen that due to the coronavirus pandemic & lockdown, the real estate sector has suffered to a great extent, If the required variables, such as incentives, are in place, this section will expand quickly. Also, as affordable housing is market-driven by end-users, the prevailing low house prices and low-interest rates for home loans might motivate home buyers to make their buying decisions.
An extra benefit for Middle-Income Group (MIG) buyers is the continuation of the Credit-Linked Subsidy Scheme (CLSS) until 31 March 2021. In addition to the injection of Rs 100 bn into eligible housing finance companies (HFCs) by the National Housing Bank (NHB), RBI’s policy rate cuts are expected to help revive the supply momentum of affordable housing projects.
The extension of project completion timelines by the Real Estate Regulatory Authority (RERA) may provide a much-needed breather to the developer community.
Considering all these tips and steps taken by authorities, cost optimization for developers would be easy. For any more assistance, SBP Group is always available for you.
