According to CREDAI (Confederation of Real Estate Developer’s Association of INDIA), the prices of residential property can go up as high as 15 % as the developers are dealing with the increasing cost of raw materials.
“The upsurge in raw material costs in the past 18 months (2020-2021) had resulted in delays in the project cost valuations”, developers said.
As a result, they were not able to finish the project at the agreed-upon cost.
As Construction raw materials like cement and steel prices are constantly rising, it has been of great concern for developers.
“We have been witnessing a steady rise in raw material prices since pandemic and the situation is not looking so good as they don’t seem to be stabilizing soon”, said Harshvardhan Patodia, President, Credai National.
Typically, the prices of all the raw materials in the construction industry rise after the consistent rise in fuel prices.
But, the price of cement and steel are constantly rising since the start of the pandemic.
HOW IT WILL AFFECT THE PROPERTY PRICES ?
- The rise in prices of construction materials like cement, sand, steel, and many more have resulted in higher construction costs. Higher construction costs will consequently result in higher property prices.
- Industry sources said construction of individual homes with a cost per square for a medium structure has become costlier which has gone up from Rs 1.5 lakh-Rs 1.75 lakh to Rs 2 lakh-₹2.5 lakh.
- Niranjan Hiranandani, National Vice President at NAREDCO and MD, Hiranandani Group, said, “The input cost of raw materials and labor has increased tremendously, resulting not only on profit margins but also on project feasibility.”
“This will make developers advance the course above housing prices by approximately 10% due to augmented input costs.” He added.
Changes in Prices of raw materials (YOY Change)
As stated earlier, this hike in the price of cement and others is a result of continuously increasing fuel prices.
Cement prices alone have seen about 7-8% monthly change and YOY change to Rs 386 per 50 kg in October 2021.
As the cement demand is improving, price analysts are excepting them to raise cement prices in the third quarter of the fiscal year to offset the higher input costs.
Fuel costs are 15-35% of the total expenses of cement companies. Therefore, affecting their operating margins.
“Our cost of production has amplified by about Rs 20,000 per tonne in the last twelve months due to soaring coking coal prices. We are in talks with our customers to renegotiate the contracts with the price hike, said RK Goyal, Managing Director, Kalyani Steel.
Why are steel prices so high in 2021?
As raw material costs have seen a sharp hike, stainless steel prices are already at an all-time high since 2014 in the second quarter of 2021. Thus, tightened supplies by sellers as base prices and margins amplified.
India’s major steelmakers have hiked benchmark hot-rolled coil prices from 3000 Rs per tonne to Rs 3,500 per tonne as rising cost inflation due to increasing coal prices.
According to a CNBC report, Indian Steelmakers are concerned about the rising steel prices in the country.
TV Narendran, Tata Steel’s CEO added that “steel prices could be rise more in the upcoming years. He also added that the steel industry is undergoing several changes which include cost rising and also China’s evolving role in steel markets.”
“Globally, many companies in Europe and the US have introduced some fluctuations in steel charges due to energy or scrap prices known as surcharges. Such absorption of cost is not easy for any consumer. So, we are considering introducing a surcharge, Rao said.
OTHER RAW MATERIALS
Niranjan Hiranandani, National Vice Chairman, and MD, Hiranandani Group at NAREDCO said, “The input cost of raw materials and labor has increased drastically, resulting not only on profit margins but also on project viability.
“This will motivate developers to improve the course above housing prices by about 10% due to increased input costs.”
Patodia said that the cost of not only steel and cement but other raw materials like tiles, sand, aluminum, copper, and gas has increased considerably while property prices have remained stable for 5-6 years.
Nagbhushan V, a civil engineer in the city, said in a market that the economy was already stressed due to a declining trend, with inflation in construction costs further affecting the business. “We hope the cost will now come down after unlocking. But we have postponed many projects indefinitely.
Construction delays caused by lockdowns and labor scarcity have resulted in increased labor costs, leading to a 10% to 15% increase in construction costs in the last 18 months.
As a result, there will be a hike in the prices of properties in no time. As the prices are soaring, a rise in property prices is inevitable.
One way to resolve this matter could be to permit price increases by including a clause or section in the buyer-seller agreement, CREDAI said.
The government should also consider consenting to an input tax credit for real estate projects or should consider rationalizing GST on various construction raw materials at its current rates as it will immediately help bring down the prices of residential properties.
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