To find out the correct price of the property it is very important to understand attributes that determine the price of YOUR HOME.
ATTRIBUTES THAT DETERMINE THE PRICE OF THE PROPERTY:
1. CONSIDER LAND COST – BASED ON LOCATION: Land Cost contributes approximately 1/3rd towards the total cost. The location of the land plays an important role in fixing the price, for example, if we talk about Gurgaon – the cost of land on Golf course road is much higher than on Golf course road extension or Sohna road for that matter. Whereas in Noida land cost in Sector 43 is higher than that of Sector 104 which is further higher than the cost of land in Sector 150. The land cost could vary from Rs 400 per sq. ft. to Rs 4000 per sq. ft. or more based on location.
COST OF CONSTRUCTION: Second most important attribute to evaluate the correct cost of the property. The material used and the technology used in the construction process play a vital role in consolidating the cost of the property. The cost of construction starts from as low as Rs 1200 per sq. ft., and the range could further vary from Rs 1400-1800, Rs 2300-2500 and Rs 3500-4000 per sq. ft. Check the material viz specification in detail to evaluate which range material is being used for construction. CONSIDER MATERIAL COST to evaluate your purchase decision.
FINANCE COST: The third most important attribute in determining the correct cost of the property. Finance cost is not only the debt cost (cost of capital) but also the establishment cost of the enterprise. The cost of Capital ranges from 8 % to 24 %. This results in the end product bearing an inflated cost. The establishment cost can increase the cost of the end product from Rs 500 to Rs 1000 per sq. ft. Attractive infrastructure pulls us to make a decision but in the end, it makes the property more expensive.
The developer also adds brand value delta to his selling price (delta can be as high as 25 %) which the consumer builds in while evaluating his buying decision
[Land Cost + Cost of Construction + Finance Cost] gives an idea of the cost to the developer. On top of this, the developer adds his profit which ranges from 12 to 18 %. This is the cost which is offered in the market or in simple language THE SELLING PRICE. For the home buyer it is very important to understand how BIG NATIONAL BRANDS-DEVELOPERS impact the pricing of the product at the same location with the same specification:
The BIG BRANDS – National developers like TATA, GODREJ, MAHINDRA, ADANI, and DLF have a legacy and hence an advantage. They get capital at a low cost (8 to 12 %) versus regional local developers who get capital starting from 14% to 24%.
Hence the big brands are able to sell their product at a higher price (15 to 25 %), higher than the regional local developers. It is a trade-off for the consumer to buy safety – trust versus the cost of the product. Price is a very sensitive matter which affects our decision making. You could choose your home in one of the three ways mentioned below – If you choose BIG BRANDED NATIONAL DEVELOPER you will end up paying extra to the tune of 20-25% at a LOW RISK.
You could buy from a REGIONAL BRAND with a good past track record of delivery at a lower price than big brands with the moderate risk involved. You could also buy from a new start-up developer, at a lower price compared to the above two options, some good players carry a good vision and use the same architects, and consultants as the regional or national developer but has no debt or capital cost and are using the same material provided, they could satisfy you with complete transparency.
At the end of the day, it is collating all information and then making a judicious decision. Written by, Mr Sanjeev Kathuria TORBIT Real Estate For first-time home buyers the below content is recommended to read through.