Construction Business Profit Margin | Guide for Startup

The construction business in India is one of the most profitable sectors. It has grown exponentially in the past decade and is expected to continue this growth trend in the coming years.

 

In fact, the construction business in India is largely driven by private players, who are responsible for more than 95% of the total output.

 

Overview of Construction Business in India

 

• Investment: Rs. 1 Crore - Rs. 10 Crores (minimum)
• Area Required: 800 sq ft. - 1000 sq ft. (minimum including office space)
• Human Resource: 5- 8 Permanent Employees (Initially) and Daily Wage Labour on Project Basis as required
• Construction Business Profit Margin: 25% (Home Construction) , 34% (Speciality Work) and 40% - 45% (Renovation and Remodeling)
• Estimated Sales: Around Rs. 10 - 15 Lacs per 1 Crore Project

 

Investment Required for Construction Business in India

 

The construction industry is one of the most capital-intensive industries in India, and it requires a substantial investment for setting up.

 

The construction industry is not only about making buildings and roads, but it also includes maintenance, repair and renovation of existing structures.

 

The investment required for Construction Business in India varies from Rs. 10 lakhs to Rs. 500 crores depending on the size and complexity of the project.

 

A construction company has to invest in land and buildings, machinery, tools, equipment and inventory. 

 

Also, when starting a construction company, you should invest in skilled labour for the company to be successful.

 

For investment purposes, there are various sources for construction businesses in India. However, you will first require to have a company registration online certificate to gain the trust of investors.

 

Some of these include:

 

• Government grants
• Loans from banks and financial institutions
• Private equity firms
• Venture capitalists
• Partnership Capital
• Gold Loans
• Real Estate Investment Trusts
• Mortgage Loans

 

Area Required for Construction Business in India

 

The minimum area required to set up a construction business in India is a minimum of 800 sq ft. - 1000 sq ft.

 

You will need this space for your personal cabin, seating space for employees, meeting room etc. 

 

Apart from that, you will also need space for storing raw materials, construction equipment and tools, parking vehicles etc.

 

Here are a few cities you can consider for starting a construction business in India:

 

Mumbai

 

The location is one of the most expensive real estate markets in the country. So, it is not an ideal choice for people who are looking for a low-cost option to start their business. 

 

However, Mumbai still has some advantages, like its proximity to other Indian cities and ports and its high population density. As a result, it is a good place to find more customers for your business. 

 

Bangalore 

 

It is also an expensive but attractive location for construction businesses.

 

The city has seen a large number of developments and construction projects in the last few years, so it is a great place to start your business.

 

New Delhi 

 

The location has a lot of appeal for construction businesses due to the high demand for new buildings which are still affordable. 

 

There are also some advantages like access to highways and airports as well as decent infrastructure for residents.

 

Chennai

 

It has a lot of appeal for both construction businesses and businesses that need to import or export goods. 

 

The location has a huge amount of underutilized land which allows for more room for development and the city also has plenty of ports and airports. 

 

Human Resources Required for Construction Business in India

 

A construction company needs to have a team of skilled professionals who can carry out all kinds of tasks. 

 

Such as,

 

• Accountants and finance managers to maintain the accounts.
• Architects and interior designers to make the buildings aesthetically pleasing. 
• Project managers to oversee the entire project from start to finish. 
• Technicians who are specialized in their respective fields.

 

Also, they require daily wage laborers on a project basis as well.

 

For this purpose, you will have to be in touch with labor contractors and build a good relationship with them. 

 

They will provide you with workers on a contract basis.

 

Accordingly, the fixed expense on salary for permanent 5-6 employees will be around Rs. 3 Lacs - Rs. 4 Lacs per month.

 

For the daily wage laborers, it will differ from location to location and project to project. Hence, it is difficult to give an estimate in this case.

 

Factors that Determine Profit for Construction Business 

 

Construction is one of the most important sectors of the Indian economy. 

 

The factors that determine the profit for Construction businesses in India are:

 

• Labor cost
• Cost of raw material
• Cost of machinery
• Local market demand for construction services
• Government policies and regulations on land acquisition, planning, etc.
• Price of land for construction
• Taxes on income or profits
• Availability of infrastructure, utilities, and transportation facilities
• Cost of capital: how much it costs to borrow money, invest in a project, or hold cash
• Price of outputs: how much you can sell your products or services for
• Rate of inflation or deflation

 

Current Construction Industry Scenario in India

 

The construction Industry in India is expected to reach $1.4 Trillion by 2025

 

• Cities Driving Growth - Urban population contributes 75% of GDP (63% present), and 68 cities will have a population of more than 1 million.
• The construction industry market in India works across 250 sub-sectors with linkages across sectors.
• The Real Estate Industry in India is expected to reach 1 Trillion Dollars by 2030 and will contribute 13% to India’s GDP.
• Residential- By 2030, more than 40% of the population is expected to live in urban India (33% today), creating a demand for 25 million additional mid-end and affordable units.
• Under NIP, India has an investment budget of $1.4 Trillion on infrastructure - 24% on renewable energy, 19% on roads & highways, 16% on urban infrastructure, and 13% on railways
• Schemes such as the Revolutionary Smart City Mission (target 100 cities) are expected to improve the quality of life through updated technology-driven urban planning.