What is construction cost in Pune? What is builders profit margin in Pune

If you are wondering what is construction cost in Pune? Is it better to purchase plot and build your own house/bungalow or purchase apartment from builder? How much do builders make per square foot? What is builders profit margin in Pune? What is minimum plot size needed to construct bungalow? This article tries to answer these questions.

What is builder's margin? How much money builders make?
Typically builders would make anywhere between 200% to 300% margin, i.e. for every rupee invested they will profit Rs. 2 to Rs. 3. The illustration below, builder is charging more than 3 times of their cost to end customer. Moral of the story is the margin is high. This would also explain why generally they don't negotiate, because it takes less than third of their apartments to break even, which they can easily do with help of investors and financial institution borrowing, and borrowing from other sources. Managing cash-flow is key to success in construction business. That is the reason builders rely heavily on investors and other sources, in addition to financial institutions and banks.

A Desired carpet area, sq. ft. 1800
B Load factor to builder (what they charge end user is much higher) 1.2
C = A x B Superbuiltup area, sq. ft. 2160
D Construction cost PSF 1000
E = C x D Builder's total construction cost, Rs. 21,60,000
F Plot size, assumes builder uses 100% FSI, sq. ft. 1800
G Plot cost, PSF, Rs. 900
H = F x G Total plot cost, Rs. 16,20,000
I = E + H Total cost to builder, Rs. 37,80,000
J Load factor (charged to end customer) 1.4
J1 Terrace, sq. ft. 500
K = (A x J) + J1 Saleable area, sq.ft. (this is what you will pay for buying constructed property in market) 3020
L Market rate PSF, Rs. 4,000
M = K x L Market price, Rs. 1,20,80,000
N Parking spaces, 2 x Rs. 2,00,000 each 4,00,000
O = M + N Agreement value, Rs. 1,24,80,000
P Builder's total margin, Rs. 87,00,000
Q = I / K Builder PSF effective cost, Rs. 1,252
R = L - Q Builder's PSF margin, Rs. 2,748
S = R / Q Builder PSF margin, % 220%

What would it cost you to build your own bungalow?
The table below illustrates simple example of what if you bought plot and constructed your own bungalow vs. bought same saleable area from builder (say apartment of same size).

A Desired carpet area, sq. ft. 1800
B Carpet to builtup ratio 1.15
C = A x B Builtup area, sq. ft. 2070
D Construction cost PSF*, Rs. 1,500
E = C x D Total construction cost, Rs. 31,05,000
F Plot size, sq. ft. 2500
G Plot cost, PSF**, Rs. 2,300
H = F x G Total plot cost, Rs. 57,50,000
I = E + H Total cost of bungalow***, Rs. 88,55,000
J Load factor**** 1.4
J1 Terrace, sq. ft., (no cost to you, doesn't cost extra to build terraces) 500
K = (A x J) + J1 Saleable area, sq.ft. (this is what you will pay for buying constructed property in market) 3020
L Market rate PSF, Rs. 4,000
M = K x L Market price, Rs. 1,20,80,000
N Parking spaces, 2 x Rs. 200000 each 4,00,000
O = M + N Agreement value, Rs. 1,24,80,000
P Difference, you save, Rs. 36,25,000
Q = I / K Your bunglow's effective PSF rate, Rs. 2,932
R = L - Q Your PSF savings, Rs. 1,068
S = R / Q Your savings % 27%

* You can assume this cost to be Rs. 1000 PSF if you are planning to manage construction on your own. Rs. 1000 PSF would give you high quality construction. Most probably you will hire someone else, i.e. you will hire professional construction firm Professional construction firm will not charge you just the construction cost but will add their maring too. So your effective PSF construction cost can be in the range of Rs. 1200 to Rs. 1800 PSF. For this illustration, we have assumed construction cost + margin of the construction firm be Rs. 1500 PSF.

** Assumed plot is freehold NA and in proper gated community with basic facliities (drainage, sewage, electricity, water supply, roads).

*** Your bungalow cost will be higher than this to account for electric meter charges, water meter charges, legal fees, club membership charges, onetime maintenance charges, service tax. These costs are not included in this illustrations because you will incurr those irrespective of you build your bungalow or purchase apartment from builder. Actual amounts might vary, it is not material for purpose of this illustration.

**** Loading factor is higher at 1.4 to account for the fact that builders typically charge about 50% to 100% of terraces, and sometimes include terraces in loading.

Conclusion:
If you were to build your own bungalow, savings comes from not having to pay for loading, not having to pay for terraces. Not only you save, but can go for layout that you like, no compromise. From the illustrations above and our experience and observations, we have the following recommendation.

Constructing your own bungalow vs. buying apartment from builder – key inputs for making this decision
• Doing the calculations given above on paper and actually doing construction are two significantly different things. Obviously, construction is highly effort intensive and stressful activity. That is because; people just won’t get your ideas, your vision, and won’t follow you. They won’t follow your schedule; they will find thousand excuses for not doing the work in time and charging you more (and worst yet, there is no safe exit for you, you will feel trapped). This makes it highly stressful and frustrating experience. So, word of caution, get into this venture only when you are mentally prepared to handle the stress and frustration.
• This is related to the above mentioned point, make sure you can be physically present while preparations are in progress as well as while construction is done. Unless you have not only someone who can trust, but also someone competent, and capable to deal with architects, construction firm, local authorities and agencies, it is recommended not to venture for your own construction. It is good idea to buy plot, keep it idle until you can spend time and be present on site frequently or find someone as mentioned above.
• Assuming you are gone past the above mentioned words of caution, next criteria would be carpet area you are interested in. If you are looking for smaller carpet areas, say less than 1000 sq ft, it is not advisable to go for your own plot and construct. You will be better off purchasing apartment or row house in the market. If your net PSF rate for constructing bungalow is higher than what is going rate in the market, it might not be worth going for your own plot and bungalow, more so if the land is not freehold. If the land is freehold, it may still be worth, because you own the land and have flexibility to reconstruct. The benefit is you own land and that is what appreciates more.
• We recommend plot size in the range of 2000 to 2500 sq ft – this is because carpet area is directly proportionate to the plot size (FST=1), generally 2000 sq ft carpet area is more than sufficient for a spacious bungalow. We don’t recommend bigger sized plots because it just adds to the cost of the land. Even if you buy 5000 sq ft plot, you are not going to use all FSI and construct bungalow with 5000 sq ft of carpet area. In short, most of the times it will be waste to go for bigger plots. It can be individual preference, because some do like bigger plots.

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