Commodity inflation hits the real estate sector

According to Motilal Oswal, as demand for cement was affected by the foreclosure, average prices remained stable in May. They are up 6% so far in the first quarter sequentially, driven by increases in the east, south and Maharashtra

File photo
File photo

Cement

  • Prices in the East, after increasing in March and April, remained stable in May at Rs 328 for a 50 kilhram bag.
  • In the South, cement prices continued at 4% month on month in May at Rs 420 per bag
  • In the western region, prices are stable month over month and are up 5% from the previous quarter.
  • North and central India saw non-commercial prices drop from Rs 20-30 to around Rs 377 per bag. This further widened the gap with trade prices to Rs 60-70 per bag against Rs 40-50 in March

Harsh Vardhan Patodia, chairman of the Confederation of Property Developers’ Associations of India, said cement prices had risen 20-25% from levels before the second wave of Covid.

High cement prices make affordable housing unsustainable, Credai said in a statement. He suggested that the goods and services tax on cement be reduced from 28% to 18%.

BloombergQuint is awaiting responses to questions emailed to the Cement Manufacturers Association and the Indian Steel Association.

Escalating costs

The cost of construction has risen 3-5% due to soaring prices for steel, cement and other raw materials, Patodia said in an emailed response. Affordable housing could surely suffer if this situation persists, as developers are working with very slim margins, he said.

Sharad Mittal, CEO of Motilal Oswal Real Estate estimated the increase in construction cost to 5 to 8% depending on the configuration of the project.

In absolute terms, the cost has increased from Rs200 to Rs250 per square foot, said Anand Gupta, chair of the Indian Builders Association’s Housing and RERA committee. This means that the 500 square foot apartment will see a cost increase of Rs 1 to 1.25 lakh.

Developers face Catch-22

The prices of housing projects that are ready or under completion have plummeted over the past year even as stocks declined due to incentives such as reduced stamp duties in Maharashtra. Developers, however, are not risking demand by raising prices.

“The rising cost of cement and steel is definitely a problem for many builders,” said Pankaj Kapoor, founder and CEO of Liases Foras. “But the question is whether they will be able to pass this cost on to consumers. There was a pickup after the first wave and now it’s stopped again. Manufacturers therefore have very limited leeway to increase prices.

Mittal agrees. “Unlike some of the other products some or all of which can be passed on to consumers, unfortunately the cycle we are coming out of in residential real estate makes it difficult to pass to the consumer.”

According to Niranjan Hiranandani, national president of Naredco, it is no longer a question of profitability but of the viability of the project. “New launches are impacted; and in turn, this will lead to supply shortages in the future. The Covid-19 pandemic as well as the blockages have increased the “difficulty quotient” for real estate. “

There is another concern. Rising prices can lead to disputes between builders and contractors, Gupta said. “Projects can be delayed, and this can also have an impact on financial institutions. “

https://www.zumbacombo.com/commodity-inflation-hits-the-real-estate-sector/