Real estate prices have increased 5-8 percent due to a rise in the cost of construction, and rates are expected to rise further by 5-7 per cent, taking the total increase to 10-15 percent across India, Credai National President Harsh Vardhan Patodia said on April 19.
Nearly 40 percent of real estate developers feel that they will not be able to deliver their projects if the government did not take immediate steps to provide relief to them from a sharp hike in prices of construction raw materials like steel and cement, according to a survey conducted by Credai, realtors' apex body, titled National Price Rise Impact Study 2022.
He said that cement prices have gone up by more than Rs 100 a bag, while steel prices have risen from Rs 45,000 per metric tonne last year to Rs 89,000 per metric tonne as of date.
He also said that there has been a steady increase in the prices of construction raw materials in the last two years. The prices further went up due to the ongoing Ukraine-Russia war. The oil prices in the international markets are at an all-time high including the Indian market and this has further added to the escalation of the prices.
“Prices are expected to go up by 10-15 percent across the country. According to our survey, 65 percent developers felt that there will be a price increase of 10 percent and that the impact on the affordable housing segment will be the highest,” he said.
While the rise in prices has been an ongoing issue for the past two years, the current situation, which has resulted in prices of some of the raw materials skyrocketing by about 115 percent, has made it impossible for developers to deal with the imbroglio, Credai said.
"For the last one year, developers have been able to absorb the rise in the cost of construction to steer the industry's growth, post the pandemic. However, with thin margins, this will eventually have to be passed on to the buyers which may not augur well for the industry's growth momentum," Patodia said.
He also made it clear that stopping work is no solution to deal with the situation. “We will try to deliver as much as possible on time,” he added.
Credai's president-elect Boman Irani said housing prices in Mumbai have already increased by 5-8 percent. He said that the government should intervene and exercise control on building material prices. It also sought GST input credit on building material, incentives to customers through stamp duty discount/waiver and reduction in interest rates.
“If steel were to come back to the level of Rs 50,000 per metric tonne, it would provide phenomenal relief to our customers. I am hopeful that if these inflationary trends do not continue and if war comes to an end, steel prices are bound to rationalise and that will provide relief to all our customers,” said Irani.
CREDAI undertook a survey among its member developers to understand the impact and implications of price hike on the real estate sector. Approximately 1,900 CREDAI members participated in the survey from various cities of the country, and the sentiment of the majority has been that there is a direct increase of approximately 20 percent in construction costs due to the increase in prices of construction materials which will have a direct bearing on the real estate prices.
CREDAI developers expect that the government should intervene/ exercise control on building material prices, provide for GST input credit on building materials, incentivise/ subsidise customers through stamp duty discount/ waiver and reduce interest rates.
As many as 39 percent developers said that they won’t be able to sustain and deliver the projects if immediate measures to provide relief to the sector were not provided.
Almost 46 percent developers said that they will be able to sustain and deliver the project even if no immediate measures are taken to provide relief. However, they anticipate a delay in delivery, the survey said.
As many as 66 percent developers said that they would be forced to temporarily stop procurement and shut construction sites if no solution is available immediately and 76 percent developers believe that both labour unemployment and increased prices for homebuyers are the most likely immediate impacts due to the continuous price rise of building material
Seventy-six percent developers said they will be able to continue their projects only up to a maximum of six months in case raw material prices do not correct and reduce from current levels
The study was conducted from March 29 to April 11, 2022. As many as 1,849 respondents spread across 21 states participated in the survey. These included 86 in the North, 183 in the East, 596 in the South and 247 in Central India. Of these 677 were from Tier 1 cities and 1,172 were from Tier 2 and Tier 3 cities.
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