Published on 1/9/2017 12:54:02 PM
Homes can cost 5-10% less if approvals are on time
Did you know that at least 5-10 per cent of the cost of your house is because of delayed approvals? If you buy a house worth Rs 1 crore, delays account for about Rs 5-10 lakhs of the cost of your house. This is because the Central, State and City approvals that are required from start to finish of a house are delayed for upto 600 days. This when globally approvals processes have moved to much briefer period. Today, Singapore and Hong Kong give approvals for residential projects within 30 days.
V Suresh, former CMD, HUDCO and director HIRCO estimates that the delays at the Centre, State and local levels add up to 5-10 per cent of the project cost. Manu Garg, director, LandCraft & VP Credai- Delhi/NCR, RDC Raj Nagar, Ghaziabad, says that there are many ways in which delays take place and costs escalate for developers.
1) The Capital costs that the developer incurs when buying the land is blocked till approvals are granted. In the NCR, at least 25-30 per cent of the cost of the property is the cost of land. This depends on the segment of property that is being developed and the area where the land is located. Till the approvals come the project cannot be sold. The piling interest is a direct cost to the developer. Interest cost adds up to about 4.5% of the project cost
2) Approvals take at least 12-18 months and the development cycle gets delayed. This accounts for about 25 per cent of the cost loaded onto the project. If project approvals were given in time, every 15 years’ a developer can complete one full project more
3) Services that are paid to professionals such as architects, engineers, planners, etc account for 5-8 per cent of the cost of the project
4) Basic development work such as site office, watch and ward personnel, etc come into play once a land is purchased and the delay in approvals hits them as well
5) Things like clarifications, revisions, purchasable FAR, etc take a long time and delay the start of a project. As a result second phase delay pushes up cost by 8-9 per cent. In the past two years, developers have absorbed this additional cost as the markets have remained flat. Earlier this too was passed on to buyers
6) Layers of approval such as environment, pollution clearances, development authority approval, commencement certificate, etc add to the delay. Approvals like that from the Airport Authority and flight path clearances should be decentralised. The concept of blanket clearance for airport corridors have started now. Approvals after completion can take 3-6 months and residents are not able to move in. This can result in upto 12 per cent penalties to be paid to customers by the developers under the new RERA regime. Earlier it was 3-4 per cent penalties
7) When external development does not match internal development that is a cost. For one project the EDC was paid four years ago but there was no electric connection when the project was complete. Landcraft had to bring power lines to the project from 10 km away at its own cost
8) The similar issue was for sewerage. Land litigation held up the completion of the project and this was cleared just last month
9) Ideally when city authorities take EDC there should be a transparent display of how much money has been utilised for sewerage, water supply, drainage, roads etc. This should also display how many km of sector roads have been made
If you are a developer and have a viewpoint on how delayed approvals impact house prices, do write in here. If you are a consumer and would like to share your views, feel free to add your comments and we will make sure that your voice is heard by the authorities. Keep watching this space to find out how changing policies are impacting the price of the house you want to buy.