As of November 2022, cost of construction has increased 28% higher than pre-pandemic (November 2021) levels but continues to be stable, compared to March 2022. The costs of key construction materials have jumped 32% in a span of three years, affecting margins and operational schedule of construction companies. The government’s efforts such as reducing exports and cutting import duties have kept raw material costs in check over the last few months.

Cost of construction (INR/sq ft)

As of March 2022, construction costs rose 10-12% YoY, owing to a  20% increase in key material costs. Key construction materials such as Cement, Steel, Aluminium, Copper saw a significant increase, along with fuel and labour costs due to geopolitical issues, inflation etc. This created a challenge for developers who were facing high debt and liquidity concerns.

However, by November 2022, overall costs of key construction materials ( Steel, Cement, Aluminium and Copper) declined by 8%, as compared to March 2022. Aluminium registered highest decline of 55%, followed by Steel at 6% decline. However, Cement and Copper costs increased by 9% and 3% respectively along with labour costs. This, coupled with decreased fuel costs  have kept overall construction costs stable since March 2022.

“Costs of key construction materials are likely to remain volatile for next few months due to uncertainties created by geo-political issues, persistent lockdowns in China and a probable global recession. Prices of key construction materials will hinge on multiple factors including global economic situation, inflation rates and supply constraints. Therefore, developers are likely to push new launches till the input prices further decline, as any further surge in the cost of construction materials would impact the timely delivery of ongoing projects and disrupt their cashflows resulting in increase in housing prices.” said Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia, Colliers.

“Developers are planning their projects well in advance, and aiming timely project completions to cater to the surging demand. They are increasingly adopting Just-In-Case approach to store the materials well in advance to avoid supply bottlenecks and unexpected price hikes,” said Jatin Shah, Chief Technical Officer, India & Managing Director, Technical Due Diligence, Colliers.

“Residential prices have been on the rise, increasing 6% YoY in Q3 2022, led by a combination of increased input costs and robust demand. Looking ahead, prices may be more or less stable for some quarters as the market is now seeing increasing interest rates. At the same time, some investor-markets with continued demand may continue to see some increase in prices. In the industrial sector, rents can see an upward movement led by robust demand and high costs,” said Vimal Nadar, Senior Director and Head of Research, India, Colliers.

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Owing to the surge of property prices, the realty sector has been urging the Government to take necessary measures that will ease the burden on the developers. The real estate sector welcomes the tax reliefs that will aim at curbing inflation and would spike the housing demand among consumers going forward.

Below are the views shared by the realty experts sharing their views on the Government’s intervention.

Rajan Bandelkar, President, NAREDCO, The move to reduce the import duty on raw materials of iron and steel and steps to ease supply of cement would help curb the inflation and the soaring prices in the real estate segment. NAREDCO and the developer fraternity highly appreciates the Central Government and Honourable Union Minister for Housing and Urban Affairs & Minister of Petroleum and Natural Gas of India Shri. Hardeep singh Puri on the timely and apt measures. High input cost have been impacting the developers over the past several months and property prices too have seen an uptick of late, bringing concerns for the nascent recovery of the realty sector in the country. Now, the measures should help further improve the home buyer sentiment. Better availability of cement through improved logistics also comes as a welcome move, however, the steps should be complemented with GST rationalisation on cement, which forms a major part of the construction expenditure. The steep excise duty cut on petrol and diesel also would eventually lower the cost pressure with transportation costs going down. All the measures are significant decisions as they would provide the much needed relief to the common man and also calm down inflationary concerns. Multi-year high inflation had raised fears of growth slowdown. If inflation is under control, interest rate hikes too may be restrained, supporting the growth momentum.

Sandeep Runwal, President, NAREDCO Maharashtra, This will surely provide some cost relief in terms of steel and cement prices. The reduction in fuel and cement prices will have an overall good impact on the real estate sector to keep the prices in check. However, we also request the government to work on making interest rates on home loans lower and making GST input credit available to the developers at the current GST slabs. This will surely reduce the home prices making it beneficial to the larger part of the society,

Pritam Chivukula – Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI,
The government’s significant decision to reduce import duties on the steel products is a much-needed intervention that will act as the catalyst in driving the momentum of the industry. This shall surge the raw material availability in the country and put a stop to the ever-increasing prices in the market. The government’s step to subside the inflation shall act as a propeller to strengthen consumer sentiment and help in maintaining project prices. Additionally, we urge the government to lower the interest rates on home loans making the homebuying buoyant for potential buyers.

Himanshu Jain, VP – Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL), It is a much-appreciated step taken by the government to reduce the prices of steel, and cement supplies to help realtors trim construction costs. The reduction in the prices of the raw material will have an optimistic impact on the sector to keep the prices in check. Further reduction of fuel prices will only pave a smooth way for the sector and reduce the pressure on the end consumers.

Shraddha Kedia-Agarwal, Director, Transcon Developers
We appreciate the government’s intervention in stabilising the inflation of the market. This was a much-needed step to help neutralise the market condition. Cutting excise duty on raw material imports and fuel will definitely drive the positive sentiment of the end-user and the sector by the easy availability of the materials used in construction activities.

Dr. Sachin Chopda, Managing Director, Pushpam Group
The government’s recent announcement is quite commendable, it shall bring the much needed relief to the developers and the end users. The reduction in import duties on iron ore and steel shall further pad the domestic availability of raw materials. which in return shall reduce the prices of steel products used in construction and control the rising prices of Properties. The measures announced by the government will only drive the momentum of the market and control the inflation rate.’

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, Government’s intervention to tackle the inflation by announcing several measures by reducing customs duty on raw materials, lowering excise duty on fuel prices and an increase in export duty on iron ore and steel intermediates will further boost the ‘ease of living’. For the realty industry, these measures will surely taper down the concern of the possible impact of the rising cost of construction inputs and bolster the overall infrastructural development.”

Bhushan Nemlekar, Director, Sumit Woods Limited
Owing to inflationary concerns, the government has taken pragmatic steps to overcome the challenges that the real estate industry has been grappling with construction cost hikes due to increase in raw material costs. The waiving of customs duty on the import of some raw materials will  bring down the cost of construction materials creating a positive impact on the developers.’

Jitesh Lalwani – President, Homesync Real Estate Advisory
”It was a ‘timely’ move by the Government to announce key measures that will help bolster the availability of raw materials domestically, cool off prices of steel products, along with controlling the steep rise in prices of real estate projects resulting in strengthening the consumer sentiments amidst the backdrop of inflationary pressures.’

 Ramesh Nair, CEO, India & Managing Director, Market Development, Asia, Colliers. Developers have been under pressure to raise prices as cost of construction materials have seen a double-digit surge in recent times. As per Colliers initial estimates, the cost of construction was likely to rise by a further 8-9% by the end of 2022. In this scenario, the government’s intervention to control this rise by rationalizing duties and taxes on key inputs is timely and is likely to have a positive trickledown effect to the end consumers.

Also Read: Investment in Commercial Real Estate vs Residential Real Estate: A Comparative Analysis of Rental Yields

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By Varun Singh

Your dream home may further be delayed, this is what the apex body of real estate CREDAI fears.

CREDAI has written to the central government seeking their intervention. The letter is addressed to Hardeep Singh Puri, central minister for Housing and Urban Affairs

The letter is a request for immediate intervention for controlling the steep hike in prices of cement and steel amidst COVID 19 crisis.

According to CREDAI, amidst this unfortunate situation, all industries are combatting the crisis and real estate industry is no different.

Real estate is the second largest employer in the country, and the industry desperately wants to start the construction activity across the country.

The letter states, “We would like to bring your attention to the cartelization by the cement and the steel manufacturers by imposing a sudden increase in their selling price.”

CREDAI states that across various states, there has been an increase of Rs 100-250 per bag of cement. Steel prices they allege has increased by Rs 2,000-2,500 per metric tonne.

They say this will ultimately lead to home buyers being effected as the construction prices will go up.

“Given the current crisis faced by real estate industry because of COVID 19 or even otherwise, such an abrupt increase will be a bolt on the blue for the developers and will lead to increase in construction cost and overall project cost, hurting homebuyers.” CREDAI said.

Developers claim that with wafer thin margins many developers may be constrained to stop construction work, thereby impacting delivery of the projects. Thus leading to penalties under RERA, and other authorities and so on. “Needless to say, this will have a cascading effect on the home buyers also,” reads the letter.

The builders body also feels that the increase in prices of cement and steel is abrupt and highly unethical. They also claim it amounts to unfair and restrictive trade practices.

They have urged the government to control the price rise and requested the minister to take the matter with the concerned relevant ministries.

Also Read: Shahid Balwa In Uddhav Govt’s Crucial Committee.

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