Realtors say price increase imminent, if raw material cost not contained

On Nov 20, 2021

According to current data compiled by Housing.com, prices in the Delhi NCR have increased by 4% on a year-over-year basis, while prices have risen by 1% on q-o-q from an average of Rs 4377 per sq ft to Rs 4410 per sq ft. According to data from eight major cities, there has been a 5% increase on a quarter-over-quarter basis, and an 8% increase on a year-over-year basis. Property prices are projected to grow 10-15 per cent in the next 3-6 months, according to CREDAI, the apex group for real estate developers. According to the CREDAI, developers are unable to absorb the rising costs of essential raw materials such as steel, cement, copper, and PVC and would be obliged to pass the cost on to customers.

A huge increase in the price of steel bars, as well as cement, has further exacerbated the situation. Furthermore, in the recent 8-12 months, prices for plastics, man-made polymers, and resins used in piping and insulation have also risen. Between July 2020 and May 2021, steel prices soared by 60-100 per cent, while cement costs increased by more than 50-70 per cent.

The likelihood of a price increase is concerning for the developers as they are witnessing an increase in demand, and they hope that the Government will take steps to help them sustain the demand. “The cartelization has been harming the real estate sector for quite some time; however, the authorities should take steps to bring it to a stop. The real estate sector is a major contributor to the country’s GDP and requires hand-holding by the Government to ensure the wheel of economic growth keeps on moving. At this point, an increase in prices might affect the demand that would nullify the efforts put in by the developers to maintain prices at affordable rates. The developer community has been absorbing the increasing raw material cost, but it is becoming difficult to contain it further,” says Amit Modi, Director, ABA Corp.

Developers operating in NCR are pointing towards cartelization as the main culprit behind the rising raw material costs. “Looking at the current situation, the property prices would go up by 20-25 per cent. However, we feel that initiatives such as stamp duty reduction or special incentives on first home should be introduced immediately. In the absence of these methods, the only solution is to have special prices for the construction sector. The issue of increasing raw material prices has to be dealt with before it starts showing the impact on the demand” says L N Jha, Director SKA Group.

Some developers believe that the Government should bring down stamp duty charges and introduce special incentives to ensure that the property prices remain within the buyers’ reach. “After the pandemic, the demand is back, and people are showing interest in real estate assets. One of the major reasons that even the fence-sitters are coming forward is the increased affordability of real estate owing to the subdued prices. Once the price barrier breaks, we are afraid that there will be an unfortunate dent in the demand,” says Ashok Gupta, CMD, Ajnara India Ltd.

Experts are of the view that the price rise would have an impact on the commercial segment too. “With pandemic, people have started to invest in the commercial segment as real estate has come out as the safest investment tool in these challenging times. However, an increase in prices may affect the investment brackets, leading to a little hiccup in the growing segment. The impact on commercial will not be as significant as on residential, but authorities must come up with some solution to ensure every segment of real estate prospers,” says Yash Miglani, MD, Migsun Group.

The developer community feels that the impact would be immediate on demand for newly launched projects. According to housing.com data, new supply in India’s eight prime residential markets saw a remarkable upswing in Q3, showing a three-fold jump of 228% to 65,211units compared to Q32020, wherein a total of 19,865 units were launched. The demand and supply gap is still huge, and a lot more projects are needed to fulfill the demand. According to the same data, the demand for 2 BHK is 60%, whereas supply is just 8%, and the demand for 3 BHK is 20% compared to the supply of just 4%.

“Looking at the demand and supply gap, more units are needed to be brought in. However, the cost of raw materials might hamper the developers wish to launch more projects. Even in the scenario of already launched projects, the fear of a drop in sales lingers. The region is already grappling with the situation of inventory overhang of more than 1 lakh units, and the situation will worsen if price increase results in a drop in demand,” says Dhiraj Bora, Head Marcomm, Paramount Group.