Price hike of raw materials severely hit construction sector

For the last few years, one of the factors majorly affecting the property prices is the raw material cost. The rise in prices of steel bars, as well as that of cement, has added fuel to the construction budget crisis. Also the prices for plastics, man-made polymers and resins, used in everything from piping to insulation have been rising rapidly over the past few months. The pandemic-induced spike in prices of essential raw materials and the shortage of supply with traders have emerged as a challenge for many developers across the markets. Many housing projects, which were resumed after the first wave of the pandemic, are likely to slow down again owing to this new raw materials crisis.

Here is what the real estate industry has to say about the price hike:

"We have requested the Central Government to bring the iron and cement prices under control," says Ashok Mohanani, President, NAREDCO Maharashtra. "In the last three months, the iron prices have increased by Rs 20,000/- per tonne, which is almost a 50% increase in the iron prices. Apart from this, copper and aluminium prices have also increased, which has impacted the construction cost. At the time when the real estate industry is already feeling the pressure of the second wave and the lockdown restrictions, the rise in the raw material prices will put brakes on the recovery of the real estate sector."

“The cost of some of the raw materials has gone up significantly in the last few months, making it unrealistic to cut down prices in real estate projects," notes Anuj Khetan, Director, Vijay Khetan Group. "Some of the essential raw materials were increased by manufacturers citing the high transportation cost in the wake of COVID-19 related regulations. However, prices could face temporary headwinds due to the ongoing second wave of the pandemic."

"The developer fraternity has been demanding a reduction in prices of the raw materials since the last few years. However, the government has not yet taken the demand seriously," adds Bhushan Nemlekar, Director, Sumit Woods. "This can have an impact on affordable housing projects. Also, the shortage and the hike in the prices of raw materials will not only impact the construction cost but will also increase the lead time as well."

Further, according to Jayesh Rathod, Executive Director, The Guardians Real Estate Advisory, "The rise in raw material prices over the past few months has made cement and iron dearer. This is due to a combination of factors including unprecedented demand, multiple acts of force majeure, and the inevitable interruption of supply chains caused by the Covid-19 pandemic. Once the lockdown restrictions are lifted, we might notice a gradual rise in the property prices in the coming months where the change in percentage may vary as per different markets. In some parts of the country, we may witness minor hikes in the property prices by the end of the next quarter whereas we may see more significant corrections in the price by the end of 2021. All of this will be contingent on the successful stabilisation of the ongoing healthcare crisis in the country by the relevant authorities."