A day after the government slapped an export duty on certain steel products, reduced the import duties on select raw materials for steel and plastics, and sought to shore up supplies of cement through better logistics, real estate experts said that it was a ‘timely’ move and hoped that it will have the desired effect considering that input costs of steel, cement have gone up by almost 40-45 percent in the recent past, prompting developers to increase prices.
A reduction in import duty of iron ore and steel intermediates will further bolster the availability of raw materials domestically, cool off the prices of steel products, and help tide the rise in prices of projects, strengthening consumer sentiment, real estate developers said.
“Measures are being taken up to improve the availability of cement and through better logistics to reduce the cost of cement,” Finance Minister Nirmala Sitharaman had tweeted on May 21.
“Similarly, we are calibrating customs duty on raw materials & intermediaries for iron & steel to reduce their prices. Import duty on some raw materials of steel will be reduced. Export duty on some steel products will be levied,” she had tweeted.
Real estate developers welcomed the move.
“We are pleased with the finance minister and the government’s intervention to control the rise in the cost of raw materials and in turn control inflation as the Indian economy had stayed resilient while grappling with the strains of cost inflation of raw material prices but had disrupted the growth of the real estate sector in the last 18 months,” said Harsh Vardhan Patodia, President, CREDAI.
However, a momentous move by the government to reduce import duties on steel products should provide a sigh of relief to all stakeholders. Additionally, a reduction in import duty of iron ore and steel intermediates will further bolster the availability of raw materials domestically, cool off the prices of steel products, and help tide the rise in prices of projects, strengthening consumer sentiment. The FM’s assurance to improve logistics and help domestic availability of cement and lowering custom duties on coal products used in the production of cement will have a positive impact on the cost of the commodity, he said.
A reduction in prices of fuel tax to pre-Covid levels will help bring down the transportation costs of all raw materials and essentials in industries agnostic of their businesses and reduce the pressure on the end consumers, added Patodia.
“Going forward, we suggest the state government cut down on state duties on fuel too to have a direct impact on the rise in inflation. CREDAI sincerely hopes that manufacturers will pass on the price cuts to end-users. This will help the real estate developers negate increased construction costs over the last two years, which will only help prospective homebuyers," he added.
Anuj Puri, chairman, ANAROCK Group, termed it a timely move.
“It is a timely move and it is to be hoped that it will have the desired effect. Input costs of steel, cement etc. have gone up by almost 40-45 percent in recent past, thereby prompting developers to increase prices. This possibility of price hike was also highlighted in ANAROCK’s recent consumer survey wherein at least 56 percent of the respondents felt that property prices will increase in 2022,” he said.
In fact, on deep dive it emerged that a price rise of more than 10 percent will have a ‘high impact’ on residential sales and less than 10 percent rise will have a ‘moderate-to-low impact’ on sales. The current sales velocity may thus be impacted by price rise of more than 10 percent. In short, there is a self-limiting scope for increasing prices due to increased input costs. Means must be found to bring down the cost of construction materials, as there is no natural limit to high they can go if kept unchecked, he said.
Sunil Furde, president, CREDAI Maharashtra, also welcomed the move. “We appreciate the FM’s positive approach to our requests and we are hopeful that the steel cement and other construction material manufactures take note and positively act to help cool down the prices immediately. The diesel rate cuts will additionally help them reduce the prices which will further help us get lower input costs,” he said.
“This was much needed step that the industry was looking for as the high prices of steel and cement were impacting the viability of real estate projects, especially PMAY and affordable housing which have very thin margins,” said Gaurav Gupta, of SG Estates and joint secretary, CREDAI (NCR).
He hoped that prices of both steel and cement would cool down by at least 25 percent, as they are currently at 40-60 percent higher than what they were six months ago.
Asked if developers would continue to increase prices of housing units, he said: “This step is not that big that prices will be back to previous levels. This is more of a nudge/signal to steel and cement industry to keep a check on prices. Most important, it will help break the cartel of cement industry which creates artificial scarcity and control prices. Moreover, cement attracts GST at the rate of 28% which is the highest slab. It needs to be brought down to 18% as cement is one of the most important component in nation building,” he added.
Niranjan Hiranandani, vice chairperson, NAREDCO and MD Hiranandani Group, said that in the backdrop of inflationary pressures and global supply chain blockages, the Indian real estate sector has been grappling with construction cost hikes due to increase in raw material costs.
The government has taken pragmatic steps to overcome these challenges, with lowering of taxation on fuel resulting in lower costs as regards the supply chain, he added. Similarly, reduction in import duties on three key raw materials for steel production and three inputs for making plastic items, will help reduce cost of production in turn, impacting cost of steel and plastics required for construction.“Along with this, the government has also notified export duty on 11 iron and steel intermediates, which will ensure that not all production gets exported – effectively, ensuring supply in the domestic market as well,” Hiranandani added.