Price Hike in Real Estate Sector Due To Inflation

Real estate prices have increased 5-8 percent due to a rise in the cost of construction, and rates are expected to rise further by 5-7 per cent, taking the total increase to 10-15 percent across the Indian real estate market. There has been a steady increase in the prices of construction raw materials in the last two years. The prices further went up due to the Ukraine-Russia war. The oil prices in the international markets are at an all-time high including the Indian market and this has further added to the escalation of the prices.

Price differences in Tier-2 city compare to Kolkata

Amid businesses in India realizing the advantages of the work-from-home (WFH) concept in the backdrop of the Coronavirus pandemic, there has been a major shift of the workforce towards tier 2 cities in West Bengal as well as in India. In these tier 2 cities, the cost of living is less, the work-life balance is better and housing remains affordable, as compared to mega cities in spite of a huge jump in values in the past one decade, backed by infrastructure development. Though the raw material costs are more or less the same, the cost of construction is low due to lower land value, lesser migrant labour issues & lesser construction curbs due to COVID-19. So developers can fetch for lower offerings and higher profit margin.

Profit rate after Price hike

Price increases are there across offerings like steel, cement, copper and even labour charges and developers will have to pass on the cost increase again on to home buyers to protect margins. Fully-built or ready-to-move homes may not see an immediate price rise, but new constructions will definitely feel the pinch of increased cost. For the last one year amid pandemic situations, developers have been able to absorb the rise in the cost of construction. However, with such increases of raw materials, market uncertainties, disruption in supply chain and record high crude oil cost, prices of new launches across the markets are estimated to be escalated by 10-15% varying on geographies, size and scale of the projects.

Sharp rise in raw material prices is impacting profit margins with disruption in logistics, timely deliverables, and absorption of hiked cost. If developers have sold inventories at a certain price, they cannot charge an escalation from that customer. This is making it hard for developers to pass on the cost increases. Government’s intervention is required to arrest the increase in the cost of building materials, especially steel and cement and the price has to be regulated till the time the supply is restored in the domestic markets and both cement and steel should be put in the lower slabs of the goods and services tax (GST).