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CREDAI: Sharp & sustained increase in raw material prices may drive home prices up

CREDAI: Sharp & sustained increase in raw material prices may drive home prices up

The Confederation of Real Estate Developers’ Association of India (CREDAI) – an apex body of private real estate in India with over 13,000+ member developers has expressed concern over the sustained increase in price of construction raw materials including cement & steel. Driven by the festive cheer, the sales of residential properties across major cities outperformed sales during the same period in the pre-Covid years. Historically, prices of almost all materials & commodities shoot up whenever there is a consistent increase in fuel price but the prices of construction raw materials have been increasing consistently since January 2020. Added to this is the delays in construction caused by lockdowns, curfews, shortage of labour leading to increased labour cost. All these have lead to direct increase in construction cost between 10% to 15% approximately in the last 18 months.

Developers highlight that this is a multifaceted issue as RERA doesn’t allow the flexibility to escalate selling price even if the construction costs go up substantially.  Last year, CREDAI wrote to various central government departments expressing concern over the steep hike in prices of materials and has been highlighting the issue on multiple platforms.

If the prices of a higher raw materials do not start decreasing in the immediate future, there is a high probability that the prices of residential properties will go up by 10 -15% to offset the increased cost of construction.

Speaking on the issue, Harsh Vardhan Patodia, President, CREDAI National, said, “We have been consistently witnessing sharp increase in the raw material prices over the last one year and they don’t seem to be decreasing or stabilising in the near future. The developers may not be able to absorb escalating costs and unfortunately may have pass on the burden onto homebuyers. CREDAI urges the Government and relevant Ministries to address this issue and tackle the prices rise at the earliest.”

“The last two years have been a challenging road for the real estate sector but the industry has shown a strong recovery since the end of 2020 especially with record-breaking festive sales this year. The real estate industry of MMR is expected to not only bounce back, but surge going ahead supported by the breakthrough move of stamp-duty reduction along with factors such as low home interest loans and discounts offered by the developers. However, consistent hike in the prices of the raw material will shoot up the property prices across all segments hindering the homebuyers’ dream investment. And if this continues, developers will have no option but to pass on the added cost to the consumers. CREDAI-MCHI is in constant touch with various Government agencies and ministries to control/arrest the sharp increase in input cost of raw materials and fuel to stop such unwarranted situations of price rise in housing rates.” said, Deepak Goradia, President, CREDAI MCHI.

Similar to the issues at hand even the solution to these issues is multipronged. One way of addressing this issue could be to permit escalation of prices by allowing a clause in the buyer seller agreement. Government may also consider either allowing Input Tax Credit for real estate projects and / or rationalisation of GST on various construction raw materials from their current rates as this would have a bring down the prices of residential properties immediately.

If these steps are not taken immediately, property prices across all segments will shoot-up directly hampering the affordable housing & housing for all missions of the Government. Homebuyers will have to invest more for their dream house and this would negate the savings arising out of all time low housing loan interest rates.

 




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