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How Indian realtors are bent on cutting cost

August 06, 2008 10:05 IST

Real estate developer Akruti City plans to use pre-fabricated slabs in its buildings, saving 15 to 20 per cent cost over manually-laid slabs. It is also exploring new techniques to build walls and pillars that could save up to 20 per cent over conventional techniques.

Akruti is not alone in trying to cut costs as the realty slump caused by higher interest rates and capital curbs by the government begin to bite. All across India, property companies are sourcing cheaper materials, using more advanced technology and new techniques to reduce construction time even as overheads are being slashed.

The drive to cut costs is becoming critical as key input costs - steel, cement and labour - that account for 40 per cent of project costs have escalated 50 per cent over the past year.

"Many developers used to spend money lavishly. Now, it is time to rethink expenses," said Akshaya Kumar, managing director, Park Lane Property Advisors.

Unitech, the country's second largest property developer, is bulk buying sanitary ware, wood flooring and other finishing materials from factories in Malaysia and Singapore. The company hopes to save Rs 400 crore (Rs 4 billion) with these measures this financial year.

Managing director Sanjay Chandra said the increase in cost of construction made the company import materials. "Big developers like us can afford bulk buying and cut costs."

Mahindra Lifespace Developers, the realty arm of industrial conglomerate Mahindra & Mahindra, recently set up an innovation cell to explore use of new construction materials such as fly ash instead of cement, better mechanisation and technology to cut costs. The company has reduced the time taken to lay slabs from one month to 21 days and plans to cut it to a fortnight.

Recently, a team from Delhi-based realtor Ansal API visited China to source construction materials such as tiles, windows, cables and cement, which are 10 to 15 per cent cheaper than Indian products. The company recently tied up with UEM Malaysia, a large infrastructure firm, for technology and equipment to save costs and time in project construction.

Companies are also doing the obvious in paring employee overheads. For instance, Delhi-based Parsvnath Developers has cut down on five-star hotel stays, travel costs, entertainment and other expenditure.

Bangalore-based Sobha Developers has set up design offices in cities such as Mysore in Karnataka and Trissur to reduce attrition and improve cost efficiencies.

TDI infrastructure, another Delhi-based developer, has stopped outsourcing project management and doing it in-house, saving 10 per cent of the construction cost in the process.

And while the buzz is that real estate companies are retrenching staff and cutting salaries, Parsvnath chairman Pradeep Jain said such moves would not serve any purpose. "When you set up a company, employees become part of your growth. You cannot penalise staff in bad times. But we can certainly cut overheads," he said.

Jain says Parsvnath is focused on finishing projects in advance. "Instead of three years, we can finish projects in two and a half years and save time and overheads. Instead of firing employees, putting a little pressure on them to finish the projects early makes sense," he adds.

Gone are the days of companies bidding over the top to buy land. "We buy land only if price is right and has good potential to develop," said Parsvnath's Jain.

Indiabulls Real Estate has adopted a similar strategy. "We have scaled back some of our new projects and have become cautious about making new commitments," said Ajith Mittal, president, corporate affairs, Indiabulls Group.

Raghavendra Kamath & Neeraj Thakur in Mumbai