Builders fear non-completion of projects unless raw material costs are controlled: Credai survey

Nearly 40 percent real estate developers feel that they will not be able to deliver their projects if the government does not take steps to provide relief to them from a sharp hike in prices of construction raw materials like steel and cement, according to a survey conducted by realtors' apex body Credai.

Releasing its report titled 'National Price Rise Impact Study 2022', Credai National President Harsh Vardhan Patodia said housing prices have increased 5-8 per cent due to rise in cost of construction and rates are expected to rise further by 5-7 per cent, taking the total increase to 10-15 percent across India.

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The survey was conducted from March 29 to April 11 this year with a sample size of 1,849 respondents.

As per the findings, 39 percent developers won't be able to sustain and deliver the project if no immediate measures are taken to provide relief, while 76 per cent developers will be able to continue their projects only up to a maximum of six months in case raw material prices do not correct and reduce from current levels.

"This is quite a worrying scenario," Patodia said and pointed out that prices of all raw materials have gone up sharply.

The affordable housing segment will be the most impacted from this price rise, he added.

Credai's President-elect Boman Irani said housing prices in Mumbai have already increased by 5-8 percent.

The association wants that the government should intervene and exercise control on building material prices. It also sought GST input credit on building material, incentives to customers through stamp duty discount/waiver and reduction in interest rates.

The survey also indicated a steep rise of over 20 per cent in the cost of construction by 78 per cent developers which could lead to a more than 10 per cent increase in property prices.

"While the rise in prices has been an ongoing issue for the past two years, the current situation, which has resulted in prices of some of the raw materials skyrocketing by about 115%, has made it impossible for developers to deal with the imbroglio," Credai said.

Cement prices have gone up by more than Rs 100 a bag, while steel prices have risen 2.3 times from Rs 39,000 per metric tonne last year to Rs 90,000 per metric tonne as of date.

The survey revealed that 46 per cent developers feel this may impact the delivery timelines of their ongoing projects.

Majority of the developers (66 per cent) feel forced to temporarily stop procurement and shut construction sites.

Being the second largest employment generator in the country, any slowdown or stoppage in work would directly impact the labour force and their livelihoods across 250+ allied industries, Credai said.

"For the last one year, developers have been able to absorb the rise in the cost of construction to steer the industry's growth, post the pandemic. However, with thin margins, this will eventually have to be passed on to the buyers which may not augur well for the industry's growth momentum," Patodia said.

The association is in dialogue with the ministries concerned to seek their intervention to avoid any delay in project deliveries for homebuyers, help kickstart stopped projects, and save numerous jobs as the realty sector supports 251 ancillary industries linked to it, he added.

"Our recommendations included measures such as cracking down on cartelization in the steel and cement supply and setting fixed prices of raw materials," he said in a statement.

Trehan Group Managing Director Saransh Trehan said prices of cement and steel have increased sharply over the last two years.

"This has led to a sharp increase in our per square feet construction cost. We have not been able to pass on the increase in input cost to customers. But relentless rise in input costs is hurting our profit margins in a big way, and forcing us to think about future course of action," Trehan added.