Special Report...... We would be approaching the given report in following sequence:

• First we thrash out about requirement or better say importance of this report where I will take you how this report directing you to the importance and the opportunity lied in “Low Cost housing”

• One more thing would be included is what Government is doing to minimise gap between “Market Rate per square feet” and “Affordable Rate per Square feet”

• After words this report lead you to the major factor of fluctuation of rate of same size plot between two different areas.

• What is the different reason which is leading to boost up that factor? • After completing this, Report will lead you through the rate of all those materials which are

required for construction. • Then This Report will fetch you to the Real objective of this Report that is:

“Real Cost of Construction of Reasonable House”

• Then there would easier way to understand this fumbling way of construction • There would be Pie charts which would be explaining you total processes in three different

categories and those would be: • Cost of construction stage wise • Estimation of Cost of construction • Approximate cost of construction

-Item Wise and Activity Wise • Then by above Estimation we would be deciding a minimum rate of per square feet. • So likewise Report would take you through different counter which would serve you

different elements of this Report Objective.

Real Cost of Construction of Reasonable House…….

Affordable Housing needs a Revolution

Affordable housing is today’s buzzword, with developers increasingly eyeing the lower-income and middle-income segments. What’s more, it is also a national responsibility considering the colossal shortage of housing for the masses in urban India.

Big is no longer beautiful - at least in the housing industry. After ruling the realty business for many years, lavish and expensive apartments have now taken a backseat to smaller and more affordable housing. Consider the fact that even players who traditionally catered to the affluent, such as Unitech, Nirmal Lifestyles, Lodha, Hiranandani’s and Puravankara Projects, are now turning their eye towards the lower and middle-income groups. The reasons are not far to seek: a gloomy economy, stagnating housing market, dwindling investors and falling demand for luxury homes. “Builders construct houses according to the demand prompted by the economic scenario in the country,” reasons Anand Gupta, Honorary Secretary, and Builders’ Association of India (BAI). “And affordable housing is no new concept. Developers always advocated it. However, certain factors, like land cost, expenses behind sanctions from various government agencies, environmental issues, eviction of tenants and its political fallout, played a major role in the sale price of flats. Further, the economic boom propelled by the IT industry increased the demand for commercial and residential properties resulting in short supply and consequent price increase.” Others believe the economic slump aside, it was only a matter of time. “The shift had to happen as it had occurred in many other areas,” says a reputed developer who does not wish to be named. “When mobiles were introduced, they were beyond the reach of the common man; today, they are accessible to everyone. In the automobile industry, manufacturers are moving towards smaller, low-priced cars. The same thing is happening in housing now. Market conditions and competition dictate the trend.” Irrespective of what triggered the move, affordable housing is a buzzword today. In fact, the Central Government set up a high-level task force in January 2008 to study and submit its recommendations on affordable housing. The panel headed by Deepak Parekh, Chairman, Housing Development Finance Corporation (HDFC), submitted its report in December 2008 to the housing minister. Although some of the recommendations put forward by the Deepak Parekh Committee (DPC) clearly fall under the purview of the state government, impetus from the Centre will definitely make states take notice, more so with general elections round the corner. What remains to be seen is the intention of government - Centre or state - to implement the recommendations. Indeed, if even some of the suggestions are put in practice, it would go far in filling the cavernous gap that exists between demand and supply in this segment in urban areas.

Demand and supply In urban India, the population is in-creasing at a fast clip and there is a colossal housing shortage. According to the Planning Commission Report, the urban housing short-age in March 2007 was around 24.71 million and is estimated to increase to 26.5 million by 2012 - 99 per cent of this shortfall is in economically weaker sections (EWS) and low-income groups (LIG). Approximately 42.8 million persons or about 15.2 per cent of India’s urban population lives in slums with inadequate sanitary and drinking water facilities. The proportion of population living in slums is much higher in metropolitan cities. And providing them adequate housing will be the biggest challenge to the government. Commenting on the situation in its report, the DPC says that not putting affordable housing as a priority of the development agenda is tantamount to demonstrating scant regard to the basic living conditions of a vast majority of the country’s urban population.

Why is housing unaffordable? Shortage of land and escalated land price are major bottlenecks to making housing affordable in urban areas. Many industry pundits and developers point out that the basic cost of construction is the same across the board but the primary factors that drive up costs are land prices and taxes. “As inputs play an important role in the pricing of any project, the government must take the initiative to provide land at cheaper rates for the development of affordable projects. There should be a rebate on inputs required for development of these homes,” believes Rohtas Goel, Chairman & Managing Director, Omaxe Ltd, Delhi. But ensuring a steady flow of land is no easy task. As the DPC points out, “There are several instruments currently in use to bring additional lands into urban use. These are the Land Acquisition Act, 1894 and Land Revenue Acts of the States, which inter-alia relate to conversion of agriculture lands for urban use. Additional lands also come into the market when rural settlements acquire urban status. Both acquisition of land and conversion of agricultural land for urban use and its development and release into the market have been arduous (hard) and time-consuming processes.” It adds that ill-defined policies through overregulation create land shortages and distortions in the land market, leading to price escalation.

Affordable but afar As a result, affordable housing projects are now being planned largely on the outskirts of cities and metros. “Unfortunately, land is available only in areas far away from the city,” affirms Gupta. “The government should develop proper infrastructure with good transportation facilities to attract the urban population to these projects.” There are many such projects in the market today. For instance, Matheran Realty Pvt Ltd (MRPL) launched the Tanaji Malusare project in Karjat last year. This 4-million-sq-ft township featuring all facilities will have 10,000 homes ranging from 300 to 550 sq ft - priced at Rs 999 per sq ft. Delhi-based Omaxe Ltd plans to develop 1 lakh affordable homes for low-income consumers across India through its group company National Affordable Housing and Infrastructure Ltd. To be priced between Rs 3 lakh and Rs 15 lakh per flat, the projects will be initially launched in Indore, Sonepat, Neemrana and Bhiwadi.

Government Initiatives At the same time, government introduced favourable policies for addressing the urban housing problem. Affordable housing became the Indian government’s new mantra. It introduced the Bharat Nirman project, to double the construction of low cost houses to 12 million units. Under the Rajiv Awas Yojna scheme, it has rolled out a massive plan to build 5 million dwelling units in five years to house 6 crore slum dwellers. It has allocated Rs 225,000 crore for this purpose (Rajiv Gandhi Yojna, 2009). This has become a tremendous business opportunity for real estate developers entering the low cost housing programs. There were two reasons for this government initiative. One was its vision for slum free India. Second was to boost the demand for steel, cement and construction material as part of its fiscal stimulus plan. Further, government introduced an interest subsidy of 1 per cent for one year on loans up to Rs 10 lakh for properties worth less than Rs 20 lakh (FM's new subsidy, 2009). It also earmarked housing loans up to Rs 20 lakh to qualify as priority sector lending (FM's new subsidy, 2009). All these measures were intended to boost housing demand in the low income segment.

Low Cost Housing: Thus the economic downturn and the government push have led to the emergence of low cost housing as a viable and inevitable business opportunity. Low cost housing is used to describe dwelling where the total housing costs are affordable to the group of people within the “low income” bracket. It must be noted that the price range, and hence the income level is not clearly defined. Different players are targeting different price points which has actually amounted to targeting two distinct segments - middle income segment (Rs 10-25 lakh) and low income segment (Rs 3-8 lakh). While there are significant opportunities in both these segments this report chooses to analyse the low income segment and the responses of various market players. This focus is driven by the sheer size of the business opportunity (~Rs 13, 00,000 crores) which has been largely untapped, and its high social impact. This trend towards low cost housing harbours a paradigm shift in the real estate industry and has the potential to displace the existing business model. Real estate developers would need to fundamentally alter their operating model in order to succeed and sustain. For constructing particular house we need to have all those materials which require for that and for that matter here is a table of all these material require building a particular house. One more thing there are some cost by which we can differentiate a rate of per square feet rate of a particular house there are couples of factor effecting to the enormous fluctuation of rate of different types of property likewise:

• Residential • Official • Plots

So now let’s have glimpse on the factor effecting to the major fluctuation of rate of above mentioned property:

• Development of that particular area • Standard of living of that area. • Average income of respective area’s crowd • Future project announced by government of that particular area. • Types of people. • Environment of that area.

• Facility provided to that area.So above mentioned are some of the major factor which do play major role in fluctuation of rate of land. Land would be the major factor for same size of plot or flat.

Cost of Construction:Here I have made easier to understand the whole construction expenditures distribution. These pie charts would be covering all those cost or better way would be reasonable cost:

So let’s start with first pie chart...

Cost of Construction Stage wise:

These are the seven major stages which are effecting drastically on cost of construction

Excavation, concrete for foundation & Plinth:This cost would be related to all those “bases” or say “supports” that is related to would be one of the elements in cost of construction.

Superstructure Concrete & Brickwork:This cost would be dealing with concrete and bricks that would be using in the construction work and also plays an important part for being one t

Facility provided to that area. So above mentioned are some of the major factor which do play major role in fluctuation of rate of

Land would be the major factor for differentiation between rates of two different area

Cost of Construction: Here I have made easier to understand the whole construction expenditures distribution. These pie charts would be covering all those cost or better way would be reasonable cost:

Stage wise:

seven major stages which are effecting drastically on cost of construction

vation, concrete for foundation & Plinth: This cost would be related to all those “bases” or say “supports” that is related to construction.

in cost of construction.

Superstructure Concrete & Brickwork: This cost would be dealing with concrete and bricks that would be using in the construction work and

or being one the stages in the Cost of Construction.

So above mentioned are some of the major factor which do play major role in fluctuation of rate of of two different areas with

Here I have made easier to understand the whole construction expenditures distribution. These pie

seven major stages which are effecting drastically on cost of construction

construction. This

This cost would be dealing with concrete and bricks that would be using in the construction work and

Flooring: This has to be a part of construction as we all know so I won’this would be a part of Cost of Construction.

Plastering & Painting: As we all know this is also obvious ecost of construction.

Doors, windows & Woodwork: This is also one of the parts of cost of construction and playing major role in cost occurring for construction.

Water supply, sanitary fittings, Electrification and others:This cost would be occurring at the times of construction and after for the supply of water and other added features of cost would be electrification in which wire fittings and switch boards and lights so all those electric materials and others would be bath tub then showers and all those things. So these all expenses are also playing major role in Cost of Construction.

Now another pie chart would be called as major cost of construction and may not the exact figure in percentage and would give you a fair idea about that particular cost.

Estimation of Cost of Construction:

So here cost has been divided in three different parts where as mentioned in chart:

“Material cost” would the highest cost occupying 60% cost (Blue) of construction. A part from this there is another cost which is half of total cost of material cost and that is “Labour Cost” and is attaining 30% part of total Cost of Construction and At l

This has to be a part of construction as we all know so I won’t go much in details and say only that this would be a part of Cost of Construction.

As we all know this is also obvious expense of construction so this is also part of one of the stages

This is also one of the parts of cost of construction and playing major role in cost occurring for

gs, Electrification and others: This cost would be occurring at the times of construction and after for the supply of water and other added features of cost would be electrification in which wire fittings and switch boards and lights so

materials and others would be bath tub then showers and all those things. So these all expenses are also playing major role in Cost of Construction.

Now another pie chart would be called as major cost of construction and may not the exact figure in age and would give you a fair idea about that particular cost.

Estimation of Cost of Construction:

So here cost has been divided in three different parts where as mentioned in chart:

“Material cost” would the highest cost occupying 60% cost (Blue) of construction. A part from this there is another cost which is half of total cost of material cost and that is “Labour Cost” and is attaining 30% part of total Cost of Construction and At last 10% has been occupied by other cost

and say only that

xpense of construction so this is also part of one of the stages

This is also one of the parts of cost of construction and playing major role in cost occurring for

This cost would be occurring at the times of construction and after for the supply of water and other added features of cost would be electrification in which wire fittings and switch boards and lights so

materials and others would be bath tub then showers and all those things. So these

Now another pie chart would be called as major cost of construction and may not the exact figure in

“Material cost” would the highest cost occupying 60% cost (Blue) of construction. A part from this there is another cost which is half of total cost of material cost and that is “Labour Cost” and is

ast 10% has been occupied by other cost

which would be paintings, plumbing then electrification etc. so these is the major distribution of fair estimation of cost of construction.

Approximation of Cost of Construction: Here are the Approximation of all cost which among which major of them has discussed in above point and other would be mentioned over here§ Cement: 10-14% § Bricks: 8-10% § Labour contractor for concrete: 6§ Doors and windows frame: 6§ Stone Aggregates: 4-5%

§ Design and Fee for engineers and Architect: 3§ Soil: 1-3% § Water: 0-2% § Layout and excavation: 2-4%§ Sand: 3-5% § Steel Rods: 4-5% § Shuttering and Frameworks: 2§ Bore well: 2-4% § Plumbing and Sanitation: 6-8%§ Electrical works: 4-6%

which would be paintings, plumbing then electrification etc. so these is the major distribution of fair

of Cost of Construction:

of all cost which is related with “Item Wise” and “Activity Wise”among which major of them has discussed in above point and other would be mentioned over here

Labour contractor for concrete: 6-10% Doors and windows frame: 6-8%

Design and Fee for engineers and Architect: 3-5%

4%

Shuttering and Frameworks: 2-4%

8%

which would be paintings, plumbing then electrification etc. so these is the major distribution of fair

with “Item Wise” and “Activity Wise” among which major of them has discussed in above point and other would be mentioned over here:

§ Flooring: 3-7% § Painting: 6-12% § Bounary wall and Main gate: 1-3% § Others: 6-8%

So these all are the cost and their respective estimation of expenses. Now, After concentrating on different approximation now let’s move towards the real prices of that materials which are being used by the construction companies and also would be comparison of those rates with current rate and past rate. So under mentioned table give you a brief about those rates.

Table Describing All Current Rates: MATERIAL LAST WEEK THIS WEEK CEMENT PER 50KG RS.250 RS.250

STEEL ` RS.32,900 RS.33,900 TMT 8MM dia RS.36,000 RS.34,300 TMT 10-25 dia RS.34,750 RS.33,000 RMS (ready made steel) RS.43,000 RS.43,000 STIRRUPS RS.44,000 RS.44,000 VSP/ SAIL RS.41,100 RS.41,100 BRICKS 300 NOS RS.41,100 RS.41,100 RIVER SAND RS.22 PER cft RS.22 PER cft BLUE METAL (MATERIAL NOT FREELY AVAILABLE) 20 MM RS.24 TO RS.26 cft RS.24 TO RS.26 cft 40 MM RS.22/-cft RS.22/-cft BITUMEN AT I.O.C GRADE 80-100 RS.32,165/-MT RS.31,522/-MT GRADE 60/70 RS.32,117/-MT RS.32,474/-MT

CEMENT BLOCKS

SIZE IN (mm) SOLID BLOCK M-15 400*200*200 RS.34.50 RS.34.50 400*200*100 RS.20.50 RS.20.50

LABOUR MEN RS.250 TO RS.300 RS.250 TO RS.300 WOMEN RS.200 TO RS.250 RS.200 TO RS.250 PAINTER/PLUMBER RS.400 TO RS.450 RS.400 TO RS.450 CARPENTER RS.400 TO RS.500 RS.400 TO RS.500 Source: Builders Association of India (Southern Centre) Courtesy: * The Hindu Property Plus dated 29th May 2010 Link: http://www.anytimeproperty.com/index.php?pg=construction_costs

Barriers to business There are several challenges facing the low cost housing sector. Notable among them are as follows: Availability of land The land requirement is quite high given the volume requirements of this business. The land on the outskirts is cheap but there is a concern of lack of adequate transportation facilities connecting the main city to the outskirts. This may increase the risk of the projects and decrease the attractiveness of the project to prospective home buyers. However under the slum redevelopment program, significant amount of land may be freed up for development. Regulatory restrictions A significant barrier to low cost housing is the government FSI regulation. FSI is the ratio of total floor area of buildings on a certain land to the size of land. For example, the stipulated FSI for many locations in Mumbai is 1, while world over this ration ranges between 3.5 and 18. Low FSI implies land cost becomes a large fixed component of the developer’s costs, making low-cost housing projects financially unviable. (Banerji, 2009) Stipulation on FSI also implies that low-cost housing projects have to be undertaken far away from the business districts in the major cities. In such cases, availability of basic infrastructure such as electricity, water etc. and transport facilities such as roads, bus stops etc. become limiting factors that reduce project attractiveness. The idea of low-cost housing is to provide target customers with affordable houses with proper infrastructure, and located at reasonable distances from their place of work/earning livelihood. Availability of finance Another important factor in the success of low-cost housing projects is availability of finance, both for the customer and for construction. The housing finance companies too have realized the magnitude of this opportunity. As a trendsetter, HDFC has picked up 10% in low cost housing developer Value and Budget Housing Development Corporation’s (VBHDC) housing projects (Jerry Rao's Fourth, 2009). This has ensured easy availability of construction finance as well as customer house mortgages for VBHDC’s projects. Many Micro-Finance Institutes (MFIs) are also venturing into this space to provide housing finance to buyers.

Offering and Market Potential

Here above diagram is showing us the need lying in “low Income Segment” .

Let me show you one more aspect of

Premium Segment: • Price of Unit: Rs.25 lakh. • Potential Demand: 2 Million• Market Size: Rs.500,00,00,000

Medium Class Segment • Price Unit: Rs.10 to 25 lakh • Potential Demand:5 Million• Market Size:Rs.900,00,00,000

Low Class Segment • Price Unit:Rs.3 to 10 lakh • Potential Demand: 21 million• Market Size:Rs.1300,00,00,000

Resource: Adapted from: Monitor (2009),housing” p. 4

So you yourself can see the opportunity lying in Low cost segment... This would be my conclusion that would make you think on this my topic.....

85%

Offering and Market Potential

Here above diagram is showing us the need lying in “low Income Segment” .

Let me show you one more aspect of Market Offerings:

Potential Demand: 2 Million Market Size: Rs.500,00,00,000

Potential Demand:5 Million Market Size:Rs.900,00,00,000

Potential Demand: 21 million Rs.1300,00,00,000

Adapted from: Monitor (2009), “The recession proof business opportunity in low income

So you yourself can see the opportunity lying in Low cost segment... This would be my conclusion that would make you think on this my topic.....

6%9%

Market Segment

Premium Segment

Middle Income Segment

Low Income Segment

“The recession proof business opportunity in low income

Premium Segment

Middle Income Segment

Low Income Segment