BUILDING

ECONOMICS
CONTENTS

 INTRODUCTION
 DEFINITION
 ROLE
 SCOPE
 IMPORTANCE
 PRINCIPLE OF BUILDING ECONOMICS
 COMPONENTS OF COST OF BUILDING
 TYPES OF COSTS
INTRODUCTION
Building economics is concerned with production, consumption,service
and the analysis of commercial activities-

As it is related to architecture and building activity- all types of building for

all types of function by the builders (production) and consumption i.e.,
the ones who either buy or hire those building for various function with the
service offered by professionals like architects, planners, engineers, etc.

INTRODUCTIONOF BUILDING
ECONOMICS

PRODUCTION CONSUMPTION SERVICE

RELATEDTO ARCHITECTURE
AND BUILDINGACTIVITY
Building Economics is concerned with all economic aspects of construction
projects –from planning, design and implementation to the completion.
The better the definition and accurate planning undertaken so the
understanding of the economics of your project will ensure optimum results.
Building Economics is a summation of many diverse components and
specializations. Every project in the construction industry utilises some of
these specific disciplines – from construction to restoration, construction
economics is relevant everywhere.
A purely mathematical approach, though useful rarely provides the
desired outcome; construction costing is not only a matter of knowledge,
but also finesse, empathy and imagination, and of course experience
helps!

DEFINITION
“ Maximum utilization with limited resources .”
“The economic analysis of the market for services of architects and
construction companies.”
 ROLE AND SCOPE
1. Building economics is an emerging profession with a promising future.
2. As a profession, building economics should become allied with
 corporate real estate and facilities management, which encompass the
 entire building process
3. The opportunities to economize the use of building resources are highest in the
early stages of the building process, building economics focuses
 on building planning and design
4. All fields concerning the built environment, including building economics,
 are highly regarded because constructed facilities are anessential
 ingredient of modernlife
5. Building economics has become one of the key areas in educational
curricula in all fields concerning the built environment, including
architecture, civil engineering, surveying, and the like
6. Without building economics, building as an economic processwill never
 be properly understood and managed
ROLE AND SCOPE

7. Building economics concerns both the economics of buildings as assets

 and the economics of building as an economic process
8. Any well-trained economist can do well in building economics after a
brief period of familiarization with building terminology and typical
problems of the building industry
9. Building economics is a misnomer for cost accounting applied to
building projects.
10. Building economics is about management of buildingportfolios, rather
 than about investment analysis of individual building projects
11. Building economics will emerge as an important field of study when it
 develops analytical techniques and approaches all its own
 IMPORTANCE
 Need to introduces /integrate Economy in Building Project in early design stage
 Economy made integral part of project planning, construction and management
 Helps in managing cost over-run
 Helps in managing time over-run through time management
 Ensuring Building design completed within schedule time
 Provides complete picture of total cost of project
 Helps designer integrating aesthetics and economy
 Helps in meeting clients needs within given resources
 Helps in meeting clients needs within given Time
 Helps in creating product without sacrificing quality
 Looks at life cycle cost rather than initial cost
 Provides most economical solution to building construction / operational costs
 Reduces maintenance cost to minimum
 Provides value for money to client
 Provides highest building efficiency in design
 Helps in making planning choices/ bringing economy in buildings\
 Helps Architect to bring innovation in design and construction of building
 PRINCIPLE OF BUILDING ECONOMIC
 The study of Building Economics can be broadly classified into two
categories:
• Micro Economics
• Macro Economics

• MICRO ECONOMICS ALSO CALLED PRICE THEORY

 Micro Economics studies how the individual parts of the economy
make decisions to allocate limited resources.
 Microeconomics studies:
 how individuals use limited resources to meet unlimited needs
 the consequences of their decisions
 the behaviour of individual components like industries, firms and
households.
 how individual prices are set
 what determines the price of land, labour and capital
PRINCIPLE OF BUILDING ECONOMIC
MICRO ECONOMICS
IMPORTANCE

It analyses how millions of consumers and producers in an economy take

decisions about products and services offered.
It also deals with how buildings and services are distributed belonging to
different economic status.

LIMITATIONS

It cannot give an idea of the function of the economy as a whole.

 It assumes full employment which is a rare phenomenon in developing
countries or even developed countries which is quite unrealistic.
PRINCIPLE OF BUILDING ECONOMIC
MACRO ECONOMICS
 MACRO ECONOMICS ALSO CALLED INCOMETHEORY
 Macroeconomics studies about the functioning of the economy as a
 whole
 It examines the economy throughwide-lens.
 Macroeconomics studies about
 the total output of a nation
 the way the nation allocates its limited resources of land, labor and
 capital
 the ways to maximize production levels
 the techniques to promotetrade
 After observing the society as a whole, Adam Smith noted that there was an "invisible hand"
turning the wheels of the economy: a market force that keeps the economy functioning.
PRINCIPLE OF BUILDING ECONOMIC
MACRO ECONOMICS

LIMITATIONS

Individual is altogether ignored.

It overlooks individual differences, the general level of prices may be
assumed stable, but the food grains and building materials and consumer
goods may go up very high which may cause havoc for the poor and
middle class.
TYPES OF COST

 THERE ARE GENERALLY 3 TYPES OF COST

1. COST OF CONSTRUCTION
2. MAINTENANCE COST
3. OPERATING COST

Building cost is also evaluated in terms of -- Initial Cost

INITIAL COST
* Initial Building Project cost comprises of:

i Cost of Land, Land Registration, land survey x Cost of Manpower and Security
xi. Cost of Equipment and Furniture
ii Cost of Designing , plan approval
xii Transportation and Travel Charges
iii Cost of developing Site xiii Cost of Making buildings Green, Energy efficient
iv Cost of Construction xiv Cost of Time
xv Contractor’ Margin
v Cost of Money
xvi Builder’s Margin
vi Carrying Charges xvii Miscellaneous and Unforeseen Charges

vi Government fees and Taxes

vii Cost of Advertisement Initial Cost of the BUILDING means the total cost spent on:
* land, planning, designing and
viii Legal expenses
* construction
ix Cost of Supervision * till the time of occupancy.
COMPONENTS OF COST OF BUILDING
1. LAND COST:

Cost incurred in acquiring land and Registration.

It Includes( when land directly purchased from landowners)
--Cost of land
-- cost prior to registration
-- Cost of Documentation
-- Bank Charges for getting drafts made for making payment of land -- Registration Charges of land -- Other Charges and
fees -- Miscellaneous Charges When allotted through any Government Agency -- Allotment cost --Interest Cost --
Documentation Cost -Land Registration Charges - Fees Charged by Authority

2. COST OF DESIGNING BUILDING:

Cost of Surveying
Cost of testing soil/ bearing capacity/water table
Building Plan Approval fee/ charges

Building Plan Scrutiny fee --Building Plan Security --Malba Fee -- Labour Cess
 COMPONENTS OF COST OF BUILDING
Superseded Plan Scrutiny fee --Revised Building Plan Scrutiny Fee -- Cost of Structure Design -- Cost of designing Public
Health services
- Cost of designing Electric Services --Cost of Designing HVAC

-- Cost of other Consultants-Green Rating of Building/ waste management etc

— Cost of Feasibility Analysis Report -- Cost of Environment Impact Studies -- Miscellaneous

3. COST OF DEVELOPING SITE:

Cost of developing the site includes--- clearing the site,

-- providing temporary roads, water supply( water storage) lighting, fencing, -- Cost of getting temporary water connection
-- Cost of getting Temporary electric connection.

---providing site utilities like-- site office for the project manager/staff and -- other facilities -- office- stores,
-Cost of Providing space for Parking

.
COMPONENTS OF COST OF BUILDING
4. COST OF CONSTRUCTION OF BUILDING:
I total cost of construction of the building.
-- cost of Public health services- water supply, sewerage, storm water drainage

-- cost of electrical services --cost of HVAC services

--cost of mechanical services- lifts, escalators etc

ii Cost of materials

iii Cost of labour

iv Cost of Transportation

v Cost of Hiring Equipment

vi Government levies/fees
 COMPONENTS OF COST OF BUILDING
5. COST OF MONEY:

• Amount of money involved

• Amount of money garnered from own resources

• Amount of money raised from market, financial institutions etc

• Rate of Interest of borrowed money

• Time duration of the projection

• Amount of Interest to be paid

• Penal interest to be paid, if any

• Interest charges on construction loan till the completion of project

• Contingency funds

• Cost of money involved will have to be kept low to promote economy in building
COMPONENTS OF COST OF BUILDING
6. CARRYING CHARGES:

• Cost of owning of project

• Cost of maintaining site in order before / during construction like-
• site security,
• fencing
• security personnel
• Cost of services to be paid
• Electric charges
• Water Charges

7. GOVERNMENT CHARGES & FEES:

• Cost of approvals of projects

• Cost of obtaining licences

• Internal Development Charges
• External Development Charges
COMPONENTS OF COST OF BUILDING
7. GOVERNMENT CHARGES & FEES:

• Plan Scrutiny fee

• Registration Charges for land and Building

• Property Taxes

• Professional Taxes

• Labour Cess

• VAT
• Service Tax

• Income Tax
 COMPONENTS OF COST OF BUILDING
8. OTHER COSTS:
• Contractor’s Margin
• Builder’s Margin
• Cost of Advertisement
• Legal expenses
• Cost of Supervision
• Cost of Manpower and Security
• Cost of Equipment and Furniture
• Transportation and Travel Charges
• Cost of Making buildings Green, Energy efficient
• Miscellaneous and Unforeseen Charges

The Sum total of all shall be called- INITIAL COST OF BUILDING