Builders setting up prefabrication units to cut costs

Real estate developers are setting up prefabrication plants to speed up construction and cut project costs as an acute shortage of labour and a rise in raw material prices threaten to wipe out the industry's already wafer-thin margins.

Between 2009 and 2011, labour costs have risen 50% while prices of raw materials-steel, cement and bricks-have grown 25%, but developers are betting on the use of prefabs, which promise to save a third in construction time and 10-15% in costs over the long run. "This (labour shortage) is impacting delivery of projects and escalating costs," says Godrej group chairman Adi Godrej.

According toresearch firm PropEquity, nearly half of the 930,000 under-construction residential units scheduled for delivery between 2011 and 2013 are likely to be delayed by up to 18 months. In the current market, where margins are thin and customer sentiment is low, developers cannot afford project delays. "To improve the situation, we need to bring in more technology like prefab structures," says Godrej.

Prefab technology, now adopted by a number of developers in the south like Janapriya, Supertech, Brigade group and Trigunaas Build-Tech, involves making concrete walls and slabs at a manufacturing facility, transporting them to the construction site and then installing them.

India's construction industry is projected to face a labour shortage of 18-28% if the country grows at a medium rate, according to a recent World Bank report. Moreover, the success of the government's flagship job scheme, the NREGS, has reduced labour supply in large cities.

Janapriya Projects, which was facing labour shortages for quite some time, decided to use prefabricated walls in its latest project, the Lake Front township in Hyderabad. As a result, the project is now almost four months ahead compared to the construction time using the earlier method. "Earlier, we were unable to meet timelines and costs were spiraling due to high labour costs," says K Kranti Kiran Reddy, executive director at Janapriya. In October, it signed a technology deal with Finland-based Elematic for setting up a prefabrication unit, which now produces 5,000 sq ft of wall area a day. "We are using 60% less labour in the Lake Front project now."

Though companies building low-cost housing have been using the technology successfully, now developers like Janapriya are using prefabs to develop affordable and mid-income housing.

"It makes more sense to use prefabricated structures for large developments," says Harleen Oberoi, executive director, project management at Cushman & Wakefield.

Noida-based developer Supertech is investing Rs 200 crore to set up a pre-fab plant in Greater Noida and has raised Rs 50 crore debt from ICICI Bank . "We plan to use pre-fabricated walls and slabs for our mid-income and affordable homes projects," says Supertech managing director RK Arora.

"The reduced construction cost will help us keep our selling price low. Otherwise it is difficult to compete in this price range," says Arora. He and his team had visited a construction site in Malaysia last year to see how the prefab technology works. "Only five people working at the site: one man on the crane, two helping him load the prefabs and two to install them on the building."

Says Trigunaas Built-Tech project manager Bima Rajesh: "We are importing prefab moulds from Malaysia and Germany for our low-income housing projects. Now we are setting up a plant so that we can tap the growing market for affordable housing." Using prefabs, three floors can be built in 45 days as compared to a year taken by the conventional method, says Rajesh. Malaysian firm Plastek Industrial System is partnering Trigunaas in building the plant, which will cost Rs 200 crore,

Bangalore-based Brigade group is currently negotiating with a Singapore-based prefab company to design and manage a plant for it. "We are looking to set up a captive production plant (at a cost of Rs 15 crore) for affordable homes in Bangalore ," says Kailash Advani, CEO, BCV Developers, a subsidiary of Brigade Group.