If you are constructing real estate in a place like Mumbai, then it is worth thinking about the cost of approvals/regulatory and other costs. This component forms a significant chunk of total cost of development! CLSA charts do not have them. Let me elaborate:
- Fungible Premium - Fungible are is 35% in addition to built up area which a plot if eligible for. I know for a fact that fungible premium is not so cheap.
- Development Cess - based on some formula involving RR
- Development Charges - also based on some formula involving RR
- LUC or Land Under Construction Tax
- Labour Welfare Cess - Based on RR and your total built up and fungible area
- CFO Capitation Fee - Based on plot area
- Staircase, open space deficiency premiums - Based on design on the building
- Scrutiny fee - It is Municipality’s job to scrutinize building plans, but they do charge you a fee on this one.
- Estate transfer fee and Estate ground rent - If land is leasehold and not freehold, then this is applicable
Now let us look at some other costs:
- Rent - In case of redevelopment, existing tenants need to be given rent till the time construction happens
- Corpus - Sale building constructions charge this to buyer, but in case of redevelopment, builder has to provide corpus fund to the old tenants who will come back once construction is done. A cost none the less.
- If project is a redevelopment, then cost of tenants building/flats will have to be recovered from the sale area, which again effectively adds cost to the saleable component, if you see what I mean.
And finally another big one:
Interest! Banks need to earn some dough too. Though this interest cost will be low due to infra status to affordable housing, it still is a big cost. No builder will put 100% equity, 60-70% will be financed/leveraged. RERA will stretch this cost even higher because 70% of sale proceeds are locked in for a certain time period.
I may as well squeeze one more:
Cost of Corruption - I am not even going to start discussing the cost of corruption, but I know that it is a fixed per sq feet rate that officers in the administrative bodies expect as a bare minimum. Add that to the cost as well.
So adding all these costs, you can see how challenging it will be to hit satisfyingly low price points for those affordable homes. That is one answer I cannot find either. The city and state government bodies depend on these fees and premiums for their revenue. Any comments?