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Import duty on steel scrap impacts housing sector

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Sponge, pig iron makers hike prices

A FILE picture of workers standing on steel bars at a construction site
A FILE picture of workers standing on steel bars at a construction site

Ambarish Mukherjee

New Delhi, March 12

The imposition of a 5-per cent import duty on steel scrap has led to a multiplier effect for all downline industries including increase in real estate prices.

The first industry to take advantage of the Budget announcement are the sponge iron makers as sponge iron and steel scraps can replace each other to a very great extent in the steel making process.

Sponge iron prices have increased from Rs 8,800 per tonne to Rs 9,600/9,700 per tonne immediately after the Budget.

Next was increase in pig iron and billets.

Pig iron prices went up from around Rs 11,400/11,500 to Rs 12,000/Rs 12,200 and billet prices went up from around Rs 20,000 to Rs 20,800.

HOUSING SECTOR

This eventually made the steel makers increase their prices following which the realtors have effected an increase in house prices.

Prices of long steel products such as structurals, TMT bars and wire rods, the three main items used in building houses have, on an average increase from the range of Rs 23,300/Rs 23,500 to Rs 24,200/Rs 24,500, which is more or less at par with the additional 5 per cent duty imposed on scrap steel

This increase has prompted the housing industry to increase house prices. The cost of steel typically accounts for 10 per cent of the cost of construction of the house. So a house bearing a construction cost of Rs 10 lakh would use steel worth Rs 1 lakh.

So, if the realtors wanted to pass off the additional cost of steel to the purchaser, the price of a Rs 10 lakh house would have gone up to Rs 10,05,000. But in reality the prices have increased more than the increase in actual cost.

Construction industry sources said that on an average, builders have raised the house prices by 2 to 2.5 per cent on the pretext of increase in steel prices. So an average house which was priced at Rs 10 lakh before the Budget today costs anywhere between Rs 10,20,000 to Rs 10,25,000, which in turn will again give the State Governments higher revenues in terms of stamp duty and registration cost which is a function of the property price.

(This article was published in the Business Line print edition dated March 13, 2006)
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