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Wednesday, Mar 24, 2004

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Our Mumbai Bureau

If the rise in the cost of cement and steel is not curbed, the average cost of freshly developed real estate would end up 8 per cent to 10 per cent higher than original estimates.

DESPITE the general optimism that real estate developers express on growth in demand for both housing as well as corporate real estate stock, the building industry found reason to go on a one-day countrywide strike a couple of weeks ago, protesting the recent rise in both cement and steel prices.

These items constitute around 33 per cent of the input costs for developers, according to the real estate industry.

Builders say that if the rise in the cost of these items is not curbed, the cost of a flat could go up by Rs 100 a sq. foot in a very short period of time. The average cost of freshly developed real estate would end up 8 per cent to 10 per cent higher than original estimates.

The Maharashtra Chamber of Housing Industry has demanded that the State Government intervene and bring down the prices. Earlier, builders in Gujarat had made the same demand of their State Government, which had asked cement manufacturers to bring down prices to allow for unhindered construction activity. But it had little impact on the prices.

The builders say the cement manufacturers have artificially jacked up prices by mutual agreement while the cement manufacturers say that a good monsoon has boosted demand, which was a little delayed on account of the monsoon stretching into the latter part of 2003. "Delayed demand has bunched up and led to prices going up over a short period of time. But it is a genuine market situation," said a senior official with a cement manufacturing company.

The possibility that the cement manufacturers will back down on prices after a long period of flat growth in the industry seems remote.

But this increase will affect real estate costs across the country, says Mr Kumar Gera, President, CREDAI. If the industry cannot fight the situation it will try to get past it, said another builder.

At a recent news conference, representatives of three associations — Confederation of Real Estate Developers Association of India (CREDAI), the Maharashtra Chamber of Housing Industry (MCHI) and the Builders Association of India (BAI) — said they would consider alternative ways to get around the situation. The construction industry has started dialogues with China Indonesia and Korea for import of steel and cement, as it would be cheaper than buying from Indian suppliers, said a joint statement from the above-mentioned associations.

The price of cement has risen from Rs 95 a bag to Rs 160 a bag over the last three or four months; and the price of steel from Rs 19,500 a tonne to Rs 28,000 a tonne in the last two or three months. According to the builders, market indications suggest that in a very short time, the price of these two input items is likely to increase by up to 100 per cent from the base levels which are being considered.

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