Realty prices are set to increase as input cost goes up

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The real estate bodies announced to stop work for One day to register the protest against the steep hike in RAW Material prices on 4th April 2022.

Hyderabad 1st April 2022– The Confederation of Real Estate Developers’ Associations of India (CREDAI) along with all its chapters in association with Telangana Real Estate Developers’ Association (TREDA), Telangana Builders Federation (TBF), and Telangana Developers Association (TDA) came together to discuss the steps to overcome the challenges due to the steep increase in the costs of materials for construction. The steep and unprecedented increase in price for input materials for construction like steel, aluminum, cement, etc has given a severe jerk to the construction activity and is severely disrupting the project costs, severely impacting the cost of the projects and hampering the cashflows and working capital for the developers. This is severely affecting more than 600 Developers, acting as a negative catalyst that will cause a steep increase in home prices and impact the delivery to home buyers. The industry representatives including Mr. P. Rama Krishna Rao President, Mr. V. Rajashekar Reddy, General Secretary, CREDAI Hyderabad, Mr. Ch. Ramchandra Reddy, Chairman, Mr. D. Murali Krishna Reddy, President, CREDAI Telangana, Mr. Sunil Chandra Reddy, President, TREDA, Mr. C Prabhakar Rao, President, Telangana Builders Federation, Mr. G V Rao, President, Telangana Developers Association, along with the real estate fraternity got together to find the way forward for the developers in these challenging times.

Speaking on the occasion Mr. P Ramakrishna Rao, President, CREDAI Hyderabad, said, “The real estate sector in the vibrant city of Hyderabad has been robust and growing rapidly. The past two years were challenging for everyone due to the Pandemic. As things were getting normal the conflict between Russia and Ukraine, has severely impacted the supply chains globally, affecting the supply of raw materials and increasing their costs. The present increase in costs for materials like steel, aluminium, copper, PVC pipes, etc. is extremely steep and is severely impacting the cash flows for the developers and sending the cost projections in disarray. The increased cost of diesel is further causing an inflationary impact on the costs of raw materials. The developers have tried to absorb the cost all this time to remain competitive, however with the current spike in prices of raw materials we may need to consider stopping work on the projects till the prices cool down a little or continue work and pass the increased cost to the customers. In either scenario, the property cost will go up in the range of 10%-15%.”

Adding to this Mr. V. Rajashekar Reddy, General Secretary, CREDAI Hyderabad, said, “Although the real estate sector in Hyderabad is performing better than the rest of the county, the war situation between Russia and Ukraine, immediately after the pandemic is creating a lot of uncertainty in the business environment. The price of raw materials like steel, aluminum, etc is on an upward spiral. The steel price which was around Rs 40,000 – 45,000 per tonne last year has touched Rs 85,000 to 90,000, aluminum prices increased by 45-50%, and even cement prices are on an upward spiral. In this situation, the only option for a developer is to increase the property prices to accommodate the price hike.  This will lead to a hike in property prices too. The overall increase in the raw material price, transportation cost, etc. will increase the cost to the developer by approximately 10-15% which has to be passed on to the consumer.”

Adding to this Mr. Ch. Ramchandra Reddy, Chairman, CREDAI Telangana, said, “Our construction industry is different from other industries. Project completion can take anywhere between 1 year to 4 years depending on the size of the projects. We decide on the % sharing with landowners in joint venture projects during the DAGPA time based on our cost estimates for the upcoming construction period. If the cost of raw materials varies wildly from 15% to 100% the overall cost increases exponentially and the builders are in trouble. In these uncertain times, some builders are forced to pause construction work at the projects, hoping to restart after the commodity prices come down. The real estate sector is the 2nd largest employer and a major contributor to the GDP, if the projects are deferred then it will directly impact the livelihood of those depending on the sector and hamper the growth of the economy. We urge the government to allow the input tax credit for real estate projects and rationalize the GST on various construction materials from the current rates.”

Adding to this Mr. D. Murali Krishna Reddy, President, CREDAI Telangana, “Due to the pandemic and the war the real estate sector has been hit hard. Adding to this the state government’s decision to hike the stamp duty and the revision of property values has severely impacted the demand. Even now there is a difference between selling prices and government value. This has a huge impact on the market demand and adds to the struggles of the real estate sector. The state government can consider reverting to the old regime of stamp duties on the projects to boost the market sentiments in these trying times.”

Speaking on the occasion, Mr. Sunil Chandra Reddy, President, TREDA, “Due to the pandemic the real estate sector is grappling with various problems. An increase in input costs, and shrinking margins, has only added to the woes of developers and hit the sector hard. The developers are left with no option but to increase the cost of the ongoing projects  and the unsold inventory to disperse the impact of the rising prices.”

Adding to this, Mr. C Prabhakar Rao, PresidentTelangana Builders Federation said, “The real estate sector which has seen a huge downfall because of the Pandemic and the War situation, the market prices have really gone up due to the increase in the prices of the materials used like steel, cement, PVC, resins, etc. The global environment has been a dampener for prospective customers. We urge the Government both in the state and the center

 to provide relief to the developers through GST and input credits and reduce stamp duties to boost customer sentiment.”

Speaking on the occasion, Mr. G V Rao, PresidentTelangana Developers Association, said, “Due to the intense competition in the industry the developers operate on lean margins. When the input costs increase across the board, they have little leeway to absorb the same. The impact or such hike is across the board from affordable housing to luxury homes, however, the effective escalation would be higher on the affordable segment in percentage terms.”