Steep rise in raw material prices may impede realty sector growth, hike property prices

At a time when the real estate was in recovery mode from last years’ onslaught of corona pandemic, the second wave has again thrown a spanner in the works for the industry. Compounding the problem manifold is the steep jump in prices of key raw materials like cement, iron and steel, etc. The increase in prices of these items has been as much as 75% in some cases as compared to the mid of last year. This is going to be burdening for developers pushing them to reach their bottom line and also limit their capacity to come up with offers and discounts for the customers.

The strict lockdown imposed in the country last year resulted in various supply chain disruptions and bottlenecks. However, there has been only partial lockdown by various states in the country this year, thereby allowing movement of goods from one place to another. Yet the prices of construction raw materials are steadily inching upwards over the last couple of months.   

The prices of the raw materials have gone up in the country due to many domestic and international factors. The high prices are affecting the developers who are struggling not to pass on the increase to the customers.

“There has been a massive price hike of 50-100% in raw materials used by the real estate sector like steel, cement and PVC pipes since past few months. These items also form the largest chunk of the raw materials used by the industry players. Ever since RERA  has been enforced in the country, the developers cannot increase the prices of the properties after they submit their project details with the respective authorities. Hence, this hike in prices will severely dent the viability of the sector which has already been reeling under the fierce onslaught of the pandemic and the resultants lockdowns. There needs to be a check by relevant authorities on such irrational price hikes” said, Manoj Gaur, CMD, Gaurs Group and Vice President - North, CREDAI National.

Since January this year, there has also been an increase of about 15% in the prices of piping and insulation materials as a result of an increase in prices of resin and polymers.

“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 was eased 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.

The hot rolled coil steel prices have remained above Rs 60,000 mark for most days of this month (May 2021) which is about 75% higher as compared to the average prices of May 2020. Even as compared to April 2021, the prices of this category of steel have gone up by around 10%.

“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.

The global rebar prices have crossed USD895 now which used to be USD750-760 in March this year. This substantial increase is making the matters worse for the real estate industry.

“The second wave of corona is already taking the wind out of the sails for the real estate industry. On top of that, there has been a mammoth increase in the prices of important raw materials which is a double whammy 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.

The cement prices are hovering around Rs 480 per bag in most parts of India in May 2021. The same was Rs 375 in May last year. This translates into a massive hike of about 28% in the last one year.

“With an increased thrust on aspects like safety and security in real estate projects in recent years, there is more usage of insulation items, piping and other related products. The rise in prices of these and other materials may result in higher prices for the properties soon,” said Sagar Saxena, Project Head, Spectrum Metro.

Such phenomenal price rise of the material has the potential to put a complete brake on the wheels of recovery in the industry which received a severe blow during the lockdown last year.