Why now would be a good time to build, renovate a house

By Nilanjana Chakraborty
This is not the best time to buy a house. Though an estimated 2.45 lakh houses are lying unsold across the country, the correction expected in property prices has still not happened. Interest rates too are not coming down. Even so, the dip in commodity prices means this could be the ideal time to construct a house. Prices of key construction materials that account for nearly 47% of the total construction costs have come down 6-21% in the past six quarters, bringing down the overall costs by more than 6% (see graphic). These figures are based on prices of construction material in Delhi’s Burari Market between April 2014 and September 2015.

Steel accounts for the biggest chunk of the costs of construction material. Last week, the government imposed a minimum import price on steel to protect the domestic industry. This is likely to cause a spike in steel prices which had dropped almost 18% between April 2014 and September 2015. The other big component is cement. Cement prices have hardened in the past few months but still remain 5% below their April 2014 levels. Bricks, paints, electrical fittings and sanitary ware are also cheaper now. Some other costs such as labour, architect’s fee and other ancillary expenses would have obviously gone up in the past two years. Also, the ban on sand mining around Delhi has caused prices to go up. However, given the slowdown in the real estate sector, not too many projects are taking off. This means artisans, labourers and construction equipment are easily available now. If you have already secured the land and necessary clearances for your future home, the current market conditions are perfect for you to begin executing your plan.

Can’t buy in bulk There are, however, certain limitations to making the best of this opportunity. It is not easy to find space to store building materials like cement, bricks and steel. Even if you have enough space, cement cannot be stored for extended periods of time. So, you can’t buy the entire steel and cement required for construction at one go. These will have to be purchased in small installments, according to usage. Moreover, many items will not be immediately required. Prices of paints, electrical fittings and tiles are down but they are needed when the structure is ready, which could be 4-6 months down the line. By the time you need these items, their prices might have gone up.

Even so, if you have been planning to build a house, this is the best time to take the plunge. Overseeing the construction of a home is an arduous task, which is why many house owners endlessly procrastinate the decision. But delaying the decision could mean missing out on the low construction costs. Our calculations show that if the total cost of construction is Rs 30 lakh, one can save close to Rs 1.9 lakh by acting now. Keep in mind that construction involves a lot of time-consuming paperwork as well. Getting the initial permission from municipal authorities alone can take a few weeks. Finalising the architectural drawings and arranging for finances also take up a lot of time. So if you start now, the construction might start only two to three months later.