Buying a new property is going to get more expensive as builders and developers have decided to pass on the rise in construction costs to consumers.
Those in the real estate sector said factors such as the sluggish demand that the pandemic caused, in addition to costs of raw materials and the fuel prices, had all resulted in a 20% to 30% price rise, which home and property buyers will have to bear.
Suresh Hari, chairman, CREDAI Bengaluru, told The Hindu construction cost has not just increased, it has “skyrocketed.”
“The last two years of the pandemic and the subsequent sluggishness in the market have not contributed to weakening material cost. The residential markets picking up and the slow increase in demand for commercial/office space since the easing of the pandemic has led to increased demand for material. Overall, we can say that the project cost increased by more than 30%, though some of the materials have gone up by 40%,” he said.
Cement and steel have seen the highest increase, but all other materials have also seen an increase in prices, he added.
“There are various reasons given by manufacturers and vendors, but ultimately the increase is not justifiable to this extent. Availability of sand is posing a further challenge. The industry has been absorbing the cost increase over a long period of time, and the end price to customers has almost remained stagnant for the last two to three years. An increase now is inevitable,” he said.
Pranav Sharma, founder-director, Felicity Adobe LLP, explained the price rise further: “Construction cost has definitely increased in the last two-and-a-half years, and the surge depends on two factors: structural cost and finishing cost. Structural cost has gone up by 25% to 30% in the last two years, and the finishing cost has increased around 10% to 15% due to the continuous hike in fuel prices. The overall effect is around is around 20% – a net effect that has come in the cost of construction on the developer’s side.”
Every raw material has seen a rise in prices, he said, adding that steel prices have risen by nearly 80% in the last two years. “Raw materials are not being procured due to the ongoing war between Russia and Ukraine. The pandemic has also caused a fluctuation in the demand-supply game in the market. The prices of other products which use petroleum based chemical products have also increased due to the fuel hike,” he said, adding that the burden will be passed on to the consumer as it is not possible for the builder to bear the entire load.
“An increase of up to 20% from the current price can be expected. For instance, if a home buyer has a budget of ₹50 lakh for buying a home, now s/he needs to increase the budget to ₹60 lakh,” he explained.
Do they see any reduction in the near future? “Effort should be from the Governments’ side. The cost will affect government works too, which ultimately benefits the common man,” said Mr. Hari.
Mr. Sharma was more optimistic. “Yes, I do see the reduction in prices in the near future. Due to the winter Olympics, China halted export of steel. Once China resumes the exports and the sanctions on Russia and Ukraine will be lifted, then the prices will stabilise. Regarding the finishing prices due to petrol rise, I cannot comment anything as it is too volatile at this point of time. It is in the interest of consumers and overall business if the costs are standardised. This massive shifts in prices is directly or indirectly affecting individuals as well as the total business environment. Since steel is an important aspect in terms of construction, price regulation of steel should happen,” he said.