Cost of the land which is based on location:
Land cost contributes approximately one-third towards the total cost. Location of the land plays an important role in fixing the price, for example, if we talk about Gurgaon – cost of land on Golf Course Road is much higher than 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. Land cost generally varies from Rs 400 per sq ft to Rs 4,000 per sq ft or more based on location.
Cost of construction — based on material being used
The type of material being used in the construction of the property is the second most important attribute to evaluate the correct cost of the property. The material and technology used in construction process play a vital role in consolidating the cost of the property. The cost of construction starts from as low as Rs 1,200 per sq ft, the range could further vary from Rs 1,400-1,800,
Rs 2,300-2,500 and Rs 3,500-4,000 per sq ft. Check the material, viz. specification in detail to evaluate which range and type of material is being used for construction.
Finance cost is 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 1,000 per sq ft. Attractive infrastructure pulls us to make a swift decision, but at 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 home buyer builds in while evaluating his buying decision.
The combined cost (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 the big branded national developer impacts the pricing of the product at the same location with the same specification. They have a well-formed legacy and hence an advantage over other developers.
They get their capital at a low-cost (8 to 12%) versus regional local developers who get their capital starting from 14% to 24%. Hence, the big brands are able to sell their product at a price (15 to 25%) higher than the regional local developers. It is a trade-off for the home buyer to buy safety — trust versus cost of the product.