Affordable housing projects stall as construction cost pinch realtors

April 25, 2022

Affordable housing projects (and those priced below ₹75 lakh) are said to have hit the slow lane in India as developers hold back launches in view of the rising construction costs. The delay in completion of the existing projects is not ruled out either. The impact or increase in cost per sq ft is around ₹500-800 for these realtors who play on volumes with low margins.

Interestingly, some developers in Mumbai, Pune, and the Delh-NCR area had threatened to stop construction activities until there is some control over the material costs. In November, the Haryana government hiked affordable housing rates by ₹200 per sq ft. The increase came after almost seven years.

According to Pratik Jain, Founder and CEO, The Stallions — a sales and marketing firm for developers — said the cost rise has “certainly slowed down” project launches and “are affecting developers”. “Though it is yet to impact the demand, buyers will get affected if developers increase the selling price,” he told BusinessLine.

Rise in material cost

Realtors say, there has been atleast 5-10 per cent price rise across items like steel, cement, labour charges, aluminium, copper, paints and so on. CREDAI, the apex realtor’s body, pegs construction cost rise at 10-15 per cent. By December 2022, the rise in cost of construction can be another 8-10 per cent, going by current trends. Inflation measured by the wholesale price index and construction material costs is increasing at a double-digit pace.

CREDAI said the price of steel has gone up by 40-45 per cent and that of cement by 35-40 per cent, year-on-year (y-o-y). The three-month price trends show steel prices moved up from ₹51,000 per tonne to ₹70,000 per tonne, while cement cost for the period was up from ₹285 per bag to ₹310 per bag.

Rishab Siroya, President-elect, NAREDCO, NextGen, said, the sharp increase in the material costs has affected the viability of projects under affordable housing, where construction cost is 30-40 per cent of the project component.

“Till there is stability (in construction material cost) developers want to slow down on new launches. They are unable to ascertain how much cost can he borne without passing it on to the customer,” he said.

Home costs (to the buyer) are up 4-5 per cent y-o-y, say trade sources. On a quarter-on-quarter (q-o-q) basis they are up 1-3 per cent.

Impact on buyer sentiments

ANAROCK Group’s Chairman, Anuj Puri said, property price rise “will impact demand” and consumer surveys suggest that “at least 56 per cent of rthe espondents are bracing for a price rise in 2022”, but a price rise of over 10 per cent “will have a high impact on residential sales”.

“Yes, construction is getting impacted because of the rise in cost of materials. Many small developers may not be able to absorb the rising input costs currently and as such be forced to halt construction at sites,” he added. As per ANAROCK Research, the completion of nearly 3.85 lakh housing units is expected in 2022.

Published on

April 24, 2022

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