Problems faced by Builders & Developers in these tough times
While home buyers worry about the pricing of various projects & the higher interest rates, builders and developers have to consider a lot of factors while deciding the pricing of their projects. These factors are normally not taken into consideration by the end consumers as they are just buying the end product. Let’s have a look at some of these factors.
Labor: The availability of labor is one of the major factors that not just affect the completion of projects but also it’s pricing. When multiple infrastructure projects are under execution in any city, it leads to shortage of labor leading to higher payout or delay. When the labor becomes expensive, it is reflected in to the pricing of the projects.
Fund crunch: The easy funding for developers i.e., through nationalized banks has become difficult with RBI tightening the lending norms for real estate sector. Private equity players are also getting more careful & the free flow of money thru them has also dried up. Any builder can get into financial crisis because of increasing prices of raw materials, natural calamities, increasing labor costs, etc unless he is able to mobilize funds at competitive rates. A Fund crunch to a builder is often like a choking situation and this might make them to increase the prices of their projects.
High Interest Rates: The increasing interest rates of Commercial Construction Loans may make a builder not opt for a loan in the current scenario. Many builders prefer to delay projects rather than take the loan at higher rate (this proves to be a cheaper option for them). High interest rates add to the financial crisis the builders are currently facing.
Increasing Input costs: The resources builders require are getting expensive day by day. The cost of basic raw materials like Cement and steel has increased considerably in during the first six months of this year 2011. With the rising inflation rates the prices of commodities will soar at least for next six months. Analysts say construction costs rose to nearly 20-30% in the second quarter of 2011 due to increasing input costs.
Mid and small level builders are finding it difficult to keep up to the competition in this uncertain and inflationary environment. Experts foresee the current conditions to prevail for another two quarter. Many developers are selling land from their land banks to reduce the existing debts they owe.