Steep rise in construction material prices puts realtors in a tight spot, to make homes dearer

Industry experts say the producers of raw materials are increasing the prices by showing artificial shortage, which is not good for the realty sector.

In the last one year, for instance, there has been a record hike in the prices of steel, cement, copper, PVC pipes, and other construction materials.

In times of the pandemic when the real estate sector in India is still grappling with various problems and issues, a steep jump in the prices of key raw materials such as cement and iron & steel, among others, has compounded the woes of developers further and is also likely to hit the sector hard.

Expressing their concern over increasing prices, even realtors’ apex body Credai recently said that housing prices may rise by 10-15% if the prices of construction raw materials are not reined in.

Commenting on the same, Prashant Thakur, Director & Head-Research, ANAROCK Group, said, “Housing developers’ profit margins are already wafer-thin and the rising inflationary trend of basic input costs such as cement, steel and labour is a real challenge. Especially for affordable housing developers, it has become difficult to launch budget homes, since increasing prices in this highly cost-sensitive segment is difficult.”

“Nevertheless, future price hikes seem inevitable as developers will be unable to absorb these constantly-increasing input costs without them impacting their businesses. Moreover, demand for housing has increased significantly after the first wave, and increased demand invariably supports price increases,” he added.

Industry experts say the producers of raw materials are increasing the prices by showing artificial shortage, which is not good for the realty sector.

“Cement and steel makers increase the price by showing artificial shortage in stocks, which is having a bad impact on the real estate sector. After the second wave of Corona, due to the sudden increase in raw material prices, it is becoming difficult day by day to develop affordable projects. Arbitrary rising prices of cement and steel are not good for the sector. It will also have an impact on the Government of India’s mission of Housing for All 2022. Real estate is the largest employment generating sector in the country and running many industries,” said Vipul Giri, President, CREDAI Ghaziabad.

Rate list provided by the member of CREDAI Western UP

In the last one year, for instance, there has been a record hike in the prices of steel, cement, copper, PVC pipes, and other construction materials. “Aluminum has hit a decade high and consistently high fuel prices have pushed the prices up. Builders are no longer in a position to bear the cost, which will have an impact on the project cost. An increase in project cost is against the interests of both the sector and the buyer,” said Suresh Garg, Member, CREDAI Western UP.

Developers say that post the onset of the pandemic, the sector has adapted various modifications to stay afloat. Moreover, in the recent past there has been an escalation in the cost of raw materials which has been very steep, putting huge pressure on pricing.

“This is a pressing matter as these are some of the most crucial materials in the industry and have caused overall construction costs to go up. It is imperative that something is done immediately to stem the rise in the cost of major construction materials as any increase in prices today may have a direct impact on affordability for the buyer and on sales. There is an immediate requirement of government intervention to control such irrational price hikes, said Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company.

Needless to say that the pandemic-induced spike in the prices of essential raw materials has emerged as a major challenge for developers.

“At a time when real estate in India has started showing green shoots of recovery, a steep jump in the prices of key raw materials like cement, iron and steel, etc, is impacting the sector. The constant rise in fuel prices is also a major cause of the rise in the prices of raw materials, which will severely dent the viability of the sector that was reeling due to the pandemic. The developers may not be able to absorb the rising costs and unfortunately may have to pass on the burden onto homebuyers. It is important to curb the sharp increase in the input cost of raw materials so that the momentum in the housing sales that got built during the recent past sustains,” said Ramani Sastri, Chairman & MD, Sterling Developers Pvt Ltd.

Therefore, if corrective steps are not taken immediately, property prices across all segments will shoot up, also hampering the Housing for All mission of the government, Sastri added.

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