Spike in construction costs hurts both builders, buyers

Vijayawada: Constructing costs are increasing due to spike in prices of iron, cement, brick, hardware and labour charges in recent months. Consequently, middle class families are facing a challenging task of constructing a own house or purchasing a flat.

Now the cost of a 2BHK flat on the outskirts of Vijayawada reached Rs 40 lakh and 3BHK is ranging between Rs 45 to Rs.55 lakh depending on the construction and location of the building. 

Iron price has crossed Rs.50,000 per tonne, with the increase of more than 20 per cent in the last one year. Cement prices are between Rs 250 to Rs 280 per a 50 kg bag depending on the brand. After a hue and cry raised by the builders and common people, the prices of cement are hovering between Rs.250 to Rs.280.

Cost of bricks has gone up from Rs  4 to Rs 7 per unit. Labour charges are also gradually increasing in recent months. Unskilled construction worker is demanding Rs 300 to Rs 400 per day and skilled worker between Rs 700 to Rs 900 depending on experience, skill and nature of work he does.  

All these factors have led to the rise of construction cost in the capital region of Vijayawada, Guntur, Amaravati and Tadepalli. National Real Estate Developers Council (NREDC) Andhra Pradesh Central Zone president G S S Prasad said the builders are facing many problems due to rise of construction costs.

He said thousands of completed flats and ready-to-occupy in  Vijayawada, Guntur, Mangalagiri and Tadepalli remained unsold. He said it will take several years to sell these flats. After bifurcation of the state, many realtors have invested thousands of crores of rupees in construction of apartments, group houses and individual houses hoping rise in demand in the capital region.

However, the demand has not increased at expected levels. Andhra people, who settled in Hyderabad did not come back to their native places after bifurcation. Besides, income from NRIs has also come down in the region due to slowdown of software industry and uncertainty prevailing in US. Software professors are one of the important property buyers in the capital region. All these factors have impacted the realty business in the capital region.

According to estimates, the taxes paid to the State government and local bodies are amounted to 35 per cent of the total expenditure by apartment builders. The realtors have to pay 0.5 per cent Vacant Land Tax on the land value before construction of the building. The builder has to pay again VLT of 0.5 per cent to the local body during the tenure of construction.

As per the government norms, site where construction is not completed is considered vacant. Suppose a builder takes three year to complete the project, he has to pay VLT of 0.5 per cent on the cost of the site from the date of construction to the date of completion, said GSS Prasad, president, central zone of NREDC, Andhra Pradesh.

Hardware material price also shot up by 15 to 30 per cent in the last one year, said K Subba Reddy, a trader on Elur road. He said the prices of iron, stainless steel, bronze, silver materials have increased due to the impact of GST.

The government is collecting Rs 3 mining cess per square metre from the builder for construction of apartments. Besides, one per cent labour cess has to be paid on the total cost of the project. The builder has to pay ESI and insurance to the construction workers.

In addition, the government is collecting 14 per cent open space charges on the registration value of the property for giving permission for construction of structures.

All these expenses have to bear by the property buyer. Ultimately, the consumers are facing the burden of rising cost of production as well as increasing taxes.

The flat buyers have to pay 12 per cent GST on the registration value of the property, said K Satish, a realtor in Vijayawada. Besides, stamp duty is common for registration of property.