What should be the land price for a Warehouse with rentals of Rs. 18/ Sq. Ft. This is a GREAT question if you are looking to buy a land and invest in building a Warehouse and further lease it to corporates ! Siliguri is fast emerging as a major Logistic hub and all this calculations could go a long way in ascertaining your ROI. This question is basically about ROI – Return on Investment on Warehouse at Siliguri.
The cost of the warehouse determines the monthly rental quite clearly
The Return on Investment should ideally be higher than the PLR – Prime Lending Rate for the same to be profitable and workable for an investor. Say that the PLR is 9%, the ROI Should be 10%.
So let us break down the cost of the warehouse into 3 parts
- Land cost: This cost is calculated on FSI – This means we need to arrive at the cost per square foot of build up area. By example, let us assume that you can build 25,000 square feet per 3.50 Bigha Plot of Land (Given that you are allowed 50% coverage in Siliguri) and your land cost is Rs 1.00 crore per Bigha. So the Total Land Cost will come to around Rs. 3.50 Crores. So The Land Cost would come to around Rs. 1400 per Sq. ft warehouse.
- Warehouse Construction Cost: This cost to build warehouse varies from city to city as plan sanction costs, input material costs are not standard across India. Furthermore, most importantly, the specification defines the warehouse construction cost. Building with Grade A specifications and fire sprinklers can make the shed very expensive. Further, we need to arrive at a total construction cost including compound walls, plan sanctions and approvals, infrastructure costs on EB, and common area development costs. Let us say that all this costs us a total value that when divided by 25,000 square feet of the constructed area works out to Rs 1,350 cost per square foot including all taxes and GST.
- Holding cost: The time taken from the purchase of the land to completion of the building, to the finding of the tenant has costed us interest on whatever is invested over the period of time.
Also assume that we find a tenant who commences payment of rental from 1st April 2023. Then the holding cost should be calculated until 01st April 2023.
Let us assume that the PLR – Prime lending rate is 9%: (Lets consider a period of 1 Years till the time the Rentals Start. Taking 9 Months Construction period and another 3 Months of Fit out Period). The Interest Component would roughly come out to Rs. 150 per sq. ft on the Land and Rs. 60 per Sq. ft on the Construction Cost.
This therefore amounts to Rs 210/ square foot on the total built up from the day of land acquisition until the date of rent realization.
Therefore now we have a total cost to build a warehouse per square foot of Rs 1400+1350+210=Rs 2960/ sft
The RoI that an investor should get should be 1% higher than PLR, therefore at 10% RoI the annual rental should be Rs 296 or Rs 24.66 per month
Now coming back to the question, you need to know that warehouse construction costs are standard for your city. There could be a 5% variation.
Now lets picture this – Rental Rs. 18/sq.ft/month
Annual rental: Rs 18×12 months = Rs 216/ sft
At a 10% RoI, your cost cannot exceed Rs 2160/ sq.ft
Therefore:
- You will need to have a lower specification to bring down your construction cost to Rs 1080 all inclusive.
- Reduce your land acquisition cost to Rs 70 Lakhs per bigha to or Rs 980/ square foot on built up area. Therefore find a good rectangular land that does not need conversion or filling
- Complete your project faster and reduce your holding cost to Rs 100/ square foot
This is precisely on how you can achieve a 10% RoI at the Rs 18 rental with a land cost of Rs 70 Lakhs per bigha, keeping in mind the increasing demand for Warehouse in Siliguri . Hope We have given a fair understanding of the things. THINK before your POUNCE ! You may get in touch with us for more details on info@gfsrealtors.com.
