An increase in rates of raw material may lead to rise in property prices in India

October 30, 2021 | 10 mins read

A rocky road to recovery

The real estate industry is finally witnessing a recovery, but it is not a smooth journey due to the abrupt rise in raw materials. Acting as a roadblock, a steep rise in rates of raw materials like steel, iron, cement, plywood and other materials have affected the way developers position property prices. This is a pressing matter as these are some of the most crucial materials in the industry and have caused overall construction costs to go up.

The market was already suffering from the aftermath of the second wave of the pandemic in terms of the dip in the demand, the further stagnation of supply of materials has further depleted hope. At large, the prices have increased considerably, ranging between 75-100% in various scenarios. On top of it all, the shortage of labour has also slowed things dramatically.

According to the circumstances, the hike in property prices is almost inevitable. With cement prices moving up the ladder to ₹440-₹460., plywood going up by 20% and rates of metals, in particular, facing a massive hike the construction cost is forecasted to go up by a minimum of 10%. Moreover, the industry is not highly optimistic in foreseeing a price reduction in the future.

The real obstacle

The real question is, what has really lead to this steep price hike of raw materials? Something of this magnitude is a ripple effect of many complex issues manifesting domestically and internationally. Some of the persisting factors are:

The pandemic and geographical restrictions disrupted and gridlocked the seamlessness 
of the supply chain.
  • A massive hike in oil prices up to 58% have affected the entire transportation cost.
  • Substantial scarcity of raw materials across the market, especially because the 
    supply chain lacks flexibility and adaptability.
  • On a global level, the steel rebar prices have surpassed $895 leading to a 
    considerable hike, making things rather difficult for the real estate segment.
  • Apart from transportation restrictions, in various places mine operators were 
    forced to cut back production power during the pandemic.
  • And of course, the COVID-19 pandemic has been the leading factor in meandering 
    such havoc.

The industry impact

A synergy of the second wave and cascading effect of an increase in input cost are bound to fiddle with pockets and margins of developers. The industry insiders are hesitant with the current economic climate and worry that the spike towards the end-consumer will affect the demand.

Provided each integral material is upwards on the pricing parameter, the financial brunt in construction alone is more than anticipated. The forecasted repercussions would be:

  • An inviable indention on the industry which is already suffering at the hands of 
    market forces and the pandemic.
  • A market stagnation and halt on the recovery journey.
  • A sharp increase in the final ticket price of the properties as the cap can be 
    limited only to some extent in construction.
  • A cutback on the discounts and offers provided, as it won’t be feasible for 
    developers in the current climate.

The plague of prices will spread

The majority of raw materials used are the essentials and their cost increase will burden the developers deeply.  Thus, if the real estate industry wants to cover up for the adversities of the pandemic on the market and regain margins, an increase in the final property prices is an indispensable part of the plan. The domino effect has begun.

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