Developer is a price-taker, not maker: Knight Frank
Knight Frank’s latest report focuses on uncovering the relationship between the developer and the suppliers of factor inputs such as Land and Construction costs.
Land is the most significant input for property development. Analysis of land allotment policy of some of the major land aggregators provides interesting insights:
City and Industrial Development Corporation (CIDCO) follows the ‘Present Worth’ method for fixing the reserve price of land and notwithstanding the economic slump, the reserve prices of land in Navi Mumbai have been increased by almost 30 per cent in three years since 2009-10.
57 per cent of the total construction cost is contributed by three major input items namely steel, cement and labour. There are more than 6,000 developers across India relying on steel and cement manufacturers for their purchases leaving a developer with little bargaining power.
In case of labour, various job guarantee schemes have adversely affected the supply of migrant workers to construction sites. Also, the minimum wage rates have been increasing since launch of the schemes.
This analysis gives an idea that a developer is a price taker in most of the input items used in construction and has no significant influence on their price movement.
The industry structure clearly highlights that isolating the developer and solely holding them responsible for inflated property price is not justified.
To read more real estate news:
Bureaucrat sets right construction approval system
PCMC to table report on housing project for poor
Source: The Times of India
Cement, cement manufacturers, CIDCO, City and Industrial Development Corporation, Construction cost, Construction costs, job guarantee schemes, labour, Land, Navi Mumbai, prices of land, Property development, steel
