Real Estate Concerns Over Sustained Increase In Raw Material Prices

Real Estate Concerns Over Sustained Increase In Raw Material Prices
Nov 2021 , by , in Interviews

Developers have expressed concern over the sustained increase in price of construction raw materials including cement & steel.

Driven by the festive cheer, the sales of residential properties across major cities outperformed sales during the same period in the pre COVID years. Historically, prices of almost all materials & commodities shoot up whenever there is a consistent increase in fuel price but the prices of construction raw materials have been increasing consistently since January 2020. Add to this the delays in construction caused by lockdowns, curfews, shortage of labour leading to increased labour cost leading to a direct increase in construction cost anywhere between 10% and 15% in the last 18 months.

Anuj Puri, Chairman – ANAROCK Group was of the view, “We have to give credit where it is due – despite the massive increases in input costs for developers since the pandemic took hold, they held on to the low property prices as long as possible in order to foster and nurture demand.  However, with the present rising inflationary trends of input costs like cement, steel etc. it was evident that sooner or later developers would have to hike their prices. The hikes in the cost of construction materials are too severe to absorb any further without impacting buyers. Inflation has impacted our lives at every level, and real estate construction is certainly no exception.”

Developers highlight that this is a multifaceted issue as RERA doesn’t allow the flexibility to escalate selling price even if the construction costs go up substantially.  Last year, CREDAI wrote to various central government departments expressing concern over the steep hike in prices of materials and has been highlighting the issue on multiple platforms.

If the prices of a higher raw materials do not start decreasing in the immediate future, there is a high probability that the prices of residential properties will go up by 10 -15% to offset the increased cost of construction.

Harsh Vardhan Patodia, President, CREDAI National, said, “We have been consistently witnessing sharp increase in the raw material prices over the last one year and they don’t seem to be decreasing or stabilising in the near future. The developers may not be able to absorb escalating costs and unfortunately may have pass on the burden onto homebuyers. CREDAI urges the Government and relevant Ministries to address this issue and tackle the prices rise at the earliest.”

Saransh Trehan, Managing Director, Trehan Developers state, “Construction cost has already gone up by 10-20 % compared to last year because of the increase in cost of raw material as well as labour charges. Developers are left with no elbow room to absorb this increase in raw material cost, unwillingly developers will have to off-set the increase in cost by increasing the price to some extent.”

Anubhav Jain, CEO, SilverGlades Group added, “Raw material costs like cement and steel have gone up significantly in the last few months. Given that most developers are operating on very thin margins in the present market condition, there is a huge pressure on pricing. We are evaluating our input cost, if need be we will also have to increase the price.”

“The last two years have been a challenging road for the real estate sector but the industry has shown a strong recovery since the end of 2020 especially with record-breaking festive sales this year. The real estate industry of MMR is expected to not only bounce back, but surge going ahead supported by the breakthrough move of stamp-duty reduction along with factors such as low home interest loans and discounts offered by the developers. However, consistent hike in the prices of the raw material will shoot up the property prices across all segments hindering the homebuyers’ dream investment. And if this continues, developers will have no option but to pass on the added cost to the consumers. CREDAI-MCHI is in constant touch with various Government agencies and ministries to control/arrest the sharp increase in input cost of raw materials and fuel to stop such unwarranted situations of price rise in housing rates.” said, Deepak Goradia, President, CREDAI MCHI.

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