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Rising cost of construction owing to continuous increase in prices of raw materials including steel and cement and additional surge in the backdrop of the Russia-Ukraine war is making real estate developers jittery.
Concerned over the cost pressure, realtors through their pan-India body National Real Estate Development Council (NAREDCO) have sought the intervention of the Ministry of Housing & Urban Affairs (MoHUA) to arrest the increase in the cost of building materials, especially steel and cement.
“The escalation in prices is due to unprecedented events facing the world, including the Covid-19 pandemic and now, the Russia-Ukraine war,” Naredco said in a letter to housing minister Hardeep Singh Puri. “Due to the increase in the price of raw materials, the cost of real estate projects has gone up manifold. The developers are facing the brunt of the escalating cost of construction while the sale price remains unchanged.”
NAREDCO has suggested that the import duty on steel be brought down to zero from 7.5% for a period of two years and that a ban be imposed on the export of steel for two years till the issue related to high pricing and availability in domestic markets are resolved.
Besides, it said, the price of steel and cement should 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). The council also suggested that the usage of imported cement be allowed.
According to NAREDCO, the real estate sector recently started seeing green shoots of revival with the easing of the pandemic, but now rising input prices are badly impacting real estate developers.
Cement prices have increased nearly 45% to Rs 360 per bag, from Rs 250 per bag in January 2020, and steel prices have increased more than 131% to nearly Rs 90,000 per tonne of steel from about Rs 39,000 about two years ago.
According to developers, high prices of cement and steel have been a serious concern and apart from the industry bodies raising this issue earlier, many industry leaders and ministers have expressed their concern on many public platforms too.
Last year, Union Minister for Road Transport and Highways Nitin Gadkari also cautioned steel and cement manufacturers about the irrational upsurge in prices and raised this issue with the Prime Minister. He also said that the government was serious about setting up a regulator for steel and cement.
While the cost of key raw materials, including cement and steel, has been on the rise for several quarters, developers fear the cost push this time may need to be passed on to homebuyers.
Housing sales across key property markets have been witnessing a recovery amid record-low home loan interest rates, stamp duty reductions by state governments, stable prices and incentives. However, most developers have so far not increased property prices while prioritising liquidity over profitability.
The tussle between cement and real estate sectors over price rise has been going on intermittently over the years, with the latter complaining to the Competition Commission of India.
The cement industry was de-controlled in 1989 and de-licensed in 1991 under the policy of economic liberalization. Decisions on the installation of new plants are taken by the industry as per the market demand.
