The Hindu Business Line : Construction costs building up

Despite talk of bringing down the price of cement and steel, the market is yet to reflect little of the Government’s efforts to rein in prices. Talk to any of the builders or developers, their complaints are that manufacturers implement a hike immediately but the decision to drop prices is always slow to take effect.

Builders say that there is no relief in sight for the next few months and prices are bound to rule high.

According to Mr A.V. Ramaswamy, Immediate Past Chairman, Builders Association of India (Southern Region), prices of construction steel and cement have just not come down in the market even after sustained efforts by the Government.

The steel manufacturers’ commitment to bring down prices by Rs 4,000 a tonne is yet to be implemented at the dealer level.

Official prices quoted by SAIL and Vizag Steel may reflect the reduction, with price of construction steel at about Rs 38,500 a tonne, but these companies do not sell steel directly. At the dealer level, prices continue to range at around Rs 48,500 a tonne apart from 4 per cent VAT.

If the manufacturers quote at Rs 38,500, the dealers should be selling at about Rs 40,000. Unless this issue is addressed, market prices cannot be controlled, he says.

Cement manufacturers too have committed to a Rs 4 cut on a 50 kg bag, but that has not happened. Prices continue at about Rs 254 a bag, according to Mr Ramaswamy.

Steel and cement prices together account for about 40 per cent of the cost of construction, and there is no relief in sight.

Labour shortage

Labour costs and availability of labour is another major issue. When contractors plan to complete a work in three months, it invariably takes twice as long just because of labour shortage, he says.

A leading contractor based in Chennai with projects across India, too, says that steel and cement prices have not come down in the market.

Even if they do, the end-consumer cannot look forward to any reduction in prices.

The Government and the manufacturers are only talking about rolling back prices to the levels prevailing earlier this year — the end consumer is not going to see any real drop in prices, he says.

While cement companies predict a drop in prices in the coming months, there is likely to be no real impact — historically, cement prices drop ahead of the monsoon when there is no movement of cement. Last year, even during the monsoons, cement prices did not drop. But this year, considering the general mood and the Government’s insistence, there could be a drop by a few rupees — small consolation in a situation where prices are spiralling out of control, says the contractor.

Developers say that constructions costs have been soaring in the last one year, from about Rs 1,250 per sq.ft, it went up to Rs 1,400 six months ago and recently it ranged at around Rs 1,650-1,800. Of more concern is the fact that builders cannot commit themselves to a schedule. Delays add to the cost.

The market is bound to be tough at least for the next three-four months with no relief in sight.

Not that there is any specific reason for this time frame but just that something has to give, they say.