Rising cost of raw materials may hit realty growth, hike property prices

By: |
May 29, 2021 1:26 PM

The prices of construction raw materials are steadily inching upwards over the last couple of months and have hit real estate hard.

Cement prices are hovering around Rs 480 per bag in most parts of the country in May 2021.

At a time when real estate in India had started showing some green shoots of recovery, the second wave of Corona has again hit the sector hard. As if this was not enough, a steep jump in the prices of key raw materials like cement, iron and steel, etc, has compounded the problem further. According to industry sources, the increase in the prices of these items has been as much as 100% in some cases as compared to the mid of last year. Developers say this has limited their capacity to come up with new offers and give any discount to their customers.

The strict lockdown imposed in the country last year resulted in various supply chain disruptions and bottlenecks. However, there has been only partial lockdown by various states in the country this year, thereby allowing movement of goods from one place to another. Yet the prices of construction raw materials are steadily inching upwards over the last couple of months.

The prices of raw materials have gone up in the country due to many domestic and international factors, and are affecting the developers.

“There has been a massive price hike of 50-100% in the raw materials used by the real estate sector like steel, cement and PVC pipes since the past few months. These items also form the largest chunk of raw materials used by the industry players. Ever since RERA has been enforced in the country, developers cannot increase the prices of properties after they submit their project details with the respective authorities. Hence, this hike in prices will severely dent the viability of the sector which has already been reeling under the fierce onslaught of the pandemic and the resultant lockdowns. This calls for a check by the relevant authorities on such irrational price hikes,” said Manoj Gaur, CMD, Gaurs Group, and Vice President – North, CREDAI National.

Since January this year, there has also been an increase of about 15% in the prices of piping and insulation materials as a result of an increase in the prices of resin and polymers.

“We had barely come out of the challenging times of last year and just when the industry started to breathe a sigh of relief, the prices of many raw materials have jumped drastically. This will limit our capacity to give discounts and offers to home buyers, something that the current market scenario warrants. Part of the recovery seen last year after the lockdown was eased was due to the promotional offers by the developers. But this year may see a freeze on such offers,” said Pradeep Aggarwal, Founder & Chairman, Signature Global Group, Chairman, ASSOCHAM, National Council on Real Estate, Housing and Urban Development.

According to industry sources, the hot rolled coil steel prices have remained above the Rs 60,000 mark for most days in May, which is about 75% higher as compared to the average prices of May 2020. Even as compared to April 2021, the prices of this category of steel have gone up by around 10%.

“Steel is a major raw material of the real estate sector. Although we are trying to absorb the hike in the cost as much as possible, the sharp increase in the prices of this key input may affect the final pricing of properties at some stage,” said Nayan Raheja of Raheja Developers.

The global rebar prices have crossed USD895 now which used to be USD750-760 in March this year. This substantial increase is making the matters worse for the real estate industry.

“The second wave of corona is already taking the wind out of the sails for the real estate industry. On top of that, there has been a mammoth increase in the prices of important raw materials which is a double whammy for us. It is becoming increasingly difficult to absorb all the input price rises. Developers are squeezed from all ends in the present scenario,” said Amit Modi, Director, ABA Corp & President (elect), CREDAI Western UP.

Cement prices are hovering around Rs 480 per bag in most parts of the country in May 2021. The same was Rs 375 in May last year. This translates into a massive hike of about 28% in the last one year.

“With an increased thrust on aspects like safety and security in real estate projects in recent years, there is more usage of insulation items, piping and other related products. The rise in the prices of these and other materials may result in higher prices for the properties soon,” said Sagar Saxena, Project Head, Spectrum Metro.

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