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Escalation in construction cost of buildings in 2007
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The cost index shows that the percentage increase in the cost of construction from 2006 to 2007 is about 18%, writes C.H. Gopinatha Rao
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The price of materials and cost of construction are on a steady rise. The details provided by government organisations, like the Public Works Departments of both the Central and State Governments, help us understand the extent of price rise. The government data is based on the cost of various inputs, including contractor’s margin. The cost of construction per unit of plinth area is arrived at based on the specifications assumed and a schedule of rates is arrived.
While the State PWD updates the plinth area rates every year, the Central PWD has prepared the rates as on January 1, 1992, with the base as 100 at Delhi for standard specifications. The departments also furnish the cost indices for other cities. For buildings that have specifications different from that mentioned, along with the plinth area rates provided, adjustments have to be made by adding or subtracting for superior or inferior specifications. For example, in the case of poor soil warranting special foundation suitable addition is to be made for the difference in the cost of foundation.
Different rates are specified for different types of buildings such as office, hospital, school or residential buildings.
The cost index for Chennai in 1995 was 141, in 2000 it was 191, in 2004 it was 217, 2005 - 240, 2006 – 258 and 2007 - 305. The cost index shows that the percentage increase in the cost of construction from 2006 to 2007 is about 18%. This can be explained in terms of absolute rates. For example, the cost of construction of a residential building with a floor height of 2.9 m and standard specification (framed structure), excluding the cost of amenities such as plumbing, sanitary and electrical services, is given as Rs. 2,810 a sq.m. as on January 1, 1992, at Delhi base price. The cost index in Chennai for 2006 was 258. This means the cost of construction in Chennai during 2006 was (2,810 x 258/100) = Rs. 7,250 a sq.m. or Rs. 674 a sq.ft. The rate in 2007 was Rs. 674 x 305/258 = Rs. 796 a sq.ft.
Material price and labour costs contribute to the rise in cost. The cost of cement increased by about 20 per cent in 2006-2007 and labour by about 30 per cent. In addition, the periodical scarcity of materials such as sand, brick and jelly also increased the prices.
The scheme announced by the Government to offer 100 bags of cement at Rs. 200 a bag for construction of houses on less than 1,000 sq.ft. is a welcome step.
Cement is an important ingredient and also consumes a lot of natural resources that are collectively held. Regulating the price in that sense may be justifiable. However, the government scheme may not be of great benefit to the people in Chennai. The Government should consider increasing the quantity from a total of 100 bags to the extent of forty bags per 100 sq.ft. of the building.
Alternate materials
This is also the time to explore alternate building materials that are cost effective for the construction of buildings. These materials should be certified by research institutions for durability and desirability to infuse confidence in the minds of the people.
The author is former National President, Institution of Valuers
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