Rising steel, cement prices to impact real estate

28 May 2021 CW Team

Demand is expected to be muted in the current April-June quarter due to an increase in coronavirus infections and state-imposed lockdowns. When sales are slow, developers typically launch offers and promotions to entice customers. However, there is now concern about rising cement, iron, and steel prices.

According to Care Ratings, the price of the hot-rolled coil (HRC) in the domestic market averaged Rs 63,633 per tonne in May, up 9% month on month and 75% year on year. Steel prices have risen in recent months as global demand has increased despite tight supply. In recent weeks, iron ore prices have more than doubled year on year, reaching $230 per tonne.

Rising pet coke, coal, and fuel costs, as well as freight rates, have all contributed to an increase in cement prices, which is another important raw material for real estate companies. According to JM Financial Institutional Securities, cement prices in India increased by 6% on a quarterly basis in April. Cement prices in the East India region increased by nearly 21% during the same time period.

Plastics, polymers, and resins used in piping and insulation, according to developers, have also increased in price. This increase in raw material prices is bound to have an impact on the bottom line of businesses.

In the last three months, iron prices have risen by Rs 20,000 per tonne, representing a nearly 50% increase. Aside from that, copper and aluminium prices have risen, impacting construction costs, said Ashok Mohanani, president of the National Real Estate Development Council (NAREDCO) in Maharashtra.

This increase in raw material prices will “put the brakes on the recovery of the real estate sector” at a time when the second wave of the pandemic and state restrictions are already putting pressure on the sector, according to Mohanani.

Developers say they may be unable to lower prices or offer additional promotions due to the unprecedented raw material price increase, despite the fact that sentiment remains subdued due to the pandemic. Rather, if the Covid-19 crisis is contained, prices may only begin to rise in a few quarters.

The current temporary slowdown in housing demand caused by the second wave has raised the prospect of a price correction. The reality is that if the current rising inflationary trends continue, developers will be forced to raise property prices. While demand may be low, operating costs for developers have already skyrocketed, Anil Pharande, chairman and MD of Pharande Spaces told the media.

Image Source

Also read: Steel prices: In a year, HRC up 40%, TMT 30%; Consumption to grow 10%

Also read: Price hike of raw materials severely hit construction sector

Also read: Cement price escalation to impact real estate projects: NHAI

In the January-March quarter, real estate developers experienced a strong recovery. However, the second wave of Covid-19, as well as rising raw material costs, have placed them in a catch-22 situation. Demand is expected to be muted in the current April-June quarter due to an increase in coronavirus infections and state-imposed lockdowns. When sales are slow, developers typically launch offers and promotions to entice customers. However, there is now concern about rising cement, iron, and steel prices. According to Care Ratings, the price of the hot-rolled coil (HRC) in the domestic market averaged Rs 63,633 per tonne in May, up 9% month on month and 75% year on year. Steel prices have risen in recent months as global demand has increased despite tight supply. In recent weeks, iron ore prices have more than doubled year on year, reaching $230 per tonne. Rising pet coke, coal, and fuel costs, as well as freight rates, have all contributed to an increase in cement prices, which is another important raw material for real estate companies. According to JM Financial Institutional Securities, cement prices in India increased by 6% on a quarterly basis in April. Cement prices in the East India region increased by nearly 21% during the same time period. Plastics, polymers, and resins used in piping and insulation, according to developers, have also increased in price. This increase in raw material prices is bound to have an impact on the bottom line of businesses. In the last three months, iron prices have risen by Rs 20,000 per tonne, representing a nearly 50% increase. Aside from that, copper and aluminium prices have risen, impacting construction costs, said Ashok Mohanani, president of the National Real Estate Development Council (NAREDCO) in Maharashtra. This increase in raw material prices will “put the brakes on the recovery of the real estate sector” at a time when the second wave of the pandemic and state restrictions are already putting pressure on the sector, according to Mohanani. Developers say they may be unable to lower prices or offer additional promotions due to the unprecedented raw material price increase, despite the fact that sentiment remains subdued due to the pandemic. Rather, if the Covid-19 crisis is contained, prices may only begin to rise in a few quarters. The current temporary slowdown in housing demand caused by the second wave has raised the prospect of a price correction. The reality is that if the current rising inflationary trends continue, developers will be forced to raise property prices. While demand may be low, operating costs for developers have already skyrocketed, Anil Pharande, chairman and MD of Pharande Spaces told the media. Image Source Also read: Steel prices: In a year, HRC up 40%, TMT 30%; Consumption to grow 10% Also read: Price hike of raw materials severely hit construction sector Also read: Cement price escalation to impact real estate projects: NHAI