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Prefabricated Construction: Must For Any Smart City

Feb 8, 2018 8:42 AM 3 min read

Editor’s Comment: Prime Minister Narendra Modi announced the launch of Smart Cities Mission two years ago with the aim of developing 100 sustainable and inclusive cities across India. 99 cities have been identified ever since with the central government recently adding nine to the list. With an investment of over INR2 trillion being dedicated to the project, the government now needs to tap into cost-effective and innovative operational models in real estate construction.


Financial innovation is critical in the real estate sector but operational innovation is equally important for construction companies. From phones to automobiles, dynamic innovation has been the buzzword. An innovative operational model in real estate construction that deserves more attention in the Indian context is “prefabricated construction” or offsite construction. While there are differences between the various types of technologies available for offsite construction, we are primarily concerned with the cost-benefit analysis of the segment as a whole in India.


“Prefabricated construction” very simply put is construction structures produced in an offsite factory away from the construction site and assembled on site. Countries like Japan and Sweden have made significant progress in the technology over the years.


Given India’s much-improved trade relations with Japan, collaboration in offsite construction could be hugely beneficial for both nations. India can explore a technology that has the potential to contribute significantly to its real estate sector through both economic and environmental benefits, while Japanese offsite construction companies would have access to a large potential market in India.


According to a study conducted by McGraw-Hill Construction, the industries that have seen the most prefabrication in India are healthcare, education, manufacturing and warehouses, essentially construction where modularity helps and fewer reconfigurations are required. An economic analysis at the project level is required to decide on whether a developer would want to use on site construction or offsite construction. Offsite construction has certain significant advantages over onsite construction, such as efficiency in terms of a much quicker project completion cycle, lower labor costs, energy efficient construction, lesser wastage of material and other benefits of economies of scale.


Since the construction cycle is shorter than onsite construction, offsite construction additionally leads to a reduction in financing cost of the project. This reduction in financing cost arises because the real estate asset is available for use faster and hence can be sold or rented to generate return on the investment sooner.


For development of smart cities in India, “prefabricated construction” holds the key. In addition, there is a significant reduction in pollution and wastage of resources with the factory production of building components. In an increasingly urbanized world the efficiency and environment-friendly nature of offsite construction cannot be overemphasized. However, in India given the lack of prefabrication material production capacity, initial material costs may be higher than that of onsite construction. Hence a careful project level cost-benefit analysis will be required to decide between offsite and onsite technology use. It needs to be underscored that in India offsite construction technology is not a replacement for onsite construction rather it is complementary and can be used for construction where the economic benefits of offsite construction outweigh the costs.


Given the scale required to meet India’s urban housing needs, industrial production of modular homes deserves critical attention from all especially in the context of affordable housing. Offsite construction where economically feasible has the capacity to deliver affordable housing at an industrial scale to expedite providing housing to all. As mentioned earlier initial material cost for offsite construction technology in India can be high, but the scale for affordable housing has the potential to create economies of scale to further reduce cost and improve the viability for the technology to be utilized.


In summary, for “prefabricated construction” to really deliver results and create value, it is important for India to work with trade partners such as Japan to come up with economically feasible solutions. Government subsidies may help in this regard but should not be the key driver. Instead innovation and cost cutting should be emphasised. It is also essential to improve awareness for such technologies, especially with regard to construction companies focusing on affordable housing. “Prefabricated construction” in projects with economic feasibility can greatly contribute towards smart cities in India.


Originally Published in Financial Express