India’s real estate sector is bustling, playing a vital role in the country’s economy and job market. With more people, rising incomes, and cities growing fast, there’s a big demand for homes, offices, and factories. This growth has caught the attention of investors, making real estate the second-biggest job creator after farming. Experts say the real estate market could reach a whopping $1.3 trillion by 2034, giving a major boost to the country’s economy. And by 2047, it could jump to $5.17 trillion, making up a huge chunk of the country’s money flow.
But alongside the good news, there are hurdles hindering real estate’s progress. Loans are expensive, finding enough money from big institutions is tough, and getting approval for projects takes a long time. Uneven and slow development of infrastructure complicates matters. And some places are growing faster than others, making it tough to keep up the pace.
To tackle these challenges, we’ve got Engineering, Procurement, and Construction (EPC) contracts. These contracts are like a roadmap for success. An EPC contract obligates the contractor to deliver the project at a fixed, predetermined price, regardless of cost increases after the contract is signed. Although there may be a risk component built into the system, the procurement strategy ensures a well-controlled project with time and cost certainty.
An EPC contract has a single point of contact for the entire project. This facilitates communication, reduces the likelihood of misuse and helps ensure the efficient and effective completion of the project.
In addition, it offers cost savings in several ways. As they can source materials and equipment at competitive prices and ensure it is completed on time and within budget. In all helping in avoiding cost overruns and delays that can lead to additional costs. They also have a systematic quality control process in place to ensure that the project is carried out to the highest standards. They use quality control measures during the design and construction process to ensure that the finished facility meets all necessary specifications and regulations.
In the fast-moving world of real estate, flexibility is key. EPC contracts, with their fixed terms, might not always fit the bill. Since designs aren’t always complete when the contract is signed, fixed-price contracts aren’t ideal.
So, how can we make the most of EPC contracts while still keeping up with the changing real estate landscape? One way is to strike a balance between the advantages of EPC contracts and the need for flexibility. This means carefully planning projects to anticipate possible changes and building in some wiggle room for adjustments. It also means fostering good communication between all parties involved to iron out any issues that arise along the way.
In the real estate business, change is one of the rare constants! Changes may be caused by changes in Development Control rules, value engineering, and request from end-user or an improvement considered necessary by the owner.
Another approach is to explore alternative contract structures that offer more flexibility while still providing some level of cost and timeline certainty. For example, some developers opt for a hybrid model that combines elements of both fixed-price and flexible contracts, allowing for adjustments as needed without sacrificing too much predictability.
EPC contracts offer valuable benefits like cost predictability and streamlined communication, using this to the benefit of a project plausible. By striking a balance between the advantages of EPC contracts and the need for flexibility, developers can navigate the ever-changing real estate landscape more effectively, driving steady growth and innovation in India’s real estate market.
Divya Doshi, Director at Kinjal Group
