Raw material costs rise
Prices of key raw material such as cement, iron, and steel are rising rapidly, adding to the problem. The second wave has thrown a spanner in the works for the real estate industry, just as it was recovering from last year’s onslaught of corona pandemic. Prices for these items have risen by up to 75 percent in some cases since the middle of last year. For developers, this will mean meeting their bottom line while still allowing them to offer and discount products.
The country’s strict lockdown imposed last year caused numerous supply chain disruptions and bottlenecks. Various states have been allowing goods to move between their locations this year despite some partial lockdowns. Nonetheless, construction raw material prices have been steadily rising over the last few months.
The prices of raw materials in the country have risen due to a variety of domestic and international factors. It is difficult for developers to pass on the price increases to their customers due to the high prices.
Raw materials used by the real estate sector
“Over the last few months, there has been a massive price increase of 50-100 percent in raw materials used by the real estate sector, such as steel, cement, and PVC pipes. These items also account for the majority of the raw materials used by industry participants. Once developers have submitted project details to the relevant authorities, they cannot raise their prices. As a result, the price increase will severely erode the sector’s viability, which has already been battered by the pandemic’s onslaught and the resulting lockdowns. The relevant authorities must check such irrational price hikes,” said Manoj Gaur, CMD, Gaurs Group and VP, North, Credai National.
Additionally, since January, the price of piping and insulation materials has increased by 15%.
Raw materials jumped drastically
“We had barely come out of the challenging times of last year and just when the industry started to breathe a sigh of relief, the prices of many raw materials has jumped drastically. This will limit our capacity to give discounts and offers to the home buyers, something that the current market scenario warrants. Part of the recovery seen last year after the lockdown ended was due to the promotional offers by the developers. But this year may see freeze on such offers,” said Pradeep Aggarwal, founder & chairman, Signature Global Group; chairman, Assocham, National Council on Real Estate, Housing and Urban Development.
Steel prices are about 75% higher than May 2020 prices for most of this month (May 2021). Even when compared to April 2021, the prices of this type of steel have risen by around 10%.
Steel is a major raw material of the real estate industry
“Steel is a major raw material of the real estate industry. Although we are trying to absorb the hike in the cost as much as possible, the sharp increase in prices of this key input may affect the final pricing of the properties at some stage,” said Nayan Raheja of Raheja Developers.
Global rebar prices have now surpassed $895, up from $750-760 in March of this year. This significant increase is exacerbating the situation for the real estate industry.
“The second wave of corona is already taking the wind out of the sails for the real estate industry. Additionally, raw material prices have skyrocketed, which is another major setback for us. It is becoming increasingly difficult to absorb all the input price rises. The developers are squeezed from all ends in the present scenario,” said Amit Modi, director, ABA Corp & president (elect), Credai Western UP.
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In most parts of India, cement prices estimate to be around Rs 480 per bag in May 2021. In May of last year, the price was Rs 375. This equates to a massive increase of approximately 28% in the last year.
A surge in demand for insulation materials, pipes, and related materials has occurred in recent years. Prices of these and other materials may increase soon, said Spectrum Metro’s project director Sagar Saxena.