Homes to turn costlier by 10-15 per cent as input costs rise

Abhishek Law | Updated on: Mar 20, 2022
File photo

File photo | Photo Credit: Natee Meepian

New constructions will definitely feel the pinch of increased cost, experts say.

Your dream home is set to cost more as an increase in steel, cement and labour charges has forced developers to hike prices.

The cost of construction has reportedly moved up across India by at least ₹400-600 per sq ft on an average in the mid-to-premium categories; and around ₹200-250 per sq ft in the affordable segment.

Developers have pointed to the Russia-Ukraine war as a possible reason for the increase in prices of raw material, particularly steel.

There has been a 2 per cent QoQ rise and 10 per YoY rise in overall home prices in Q3 FY22 (October-December), with listed developers leading the way.

Affordable home prices are expected to have the worst hit; while premium to mid-premium homes (priced above ₹70 lakh) are not expected to see much of a change in demand. Affordable homes have a margins of around 15 per cent, say developers, against which the cumulative cost rise is “well over 10 per cent”; thereby leading to erosion of margins.

Cement prices have been flat (month-on-month) on a pan India basis, but there have been hikes in Central and Western India ( 1–3 per cent MoM) and Northern India (up by ₹10 – 12 per bag) and a 9 per cent MoM roll back in east. Steel prices are up by ₹5000–8000 per tonne (across items like TMT bars and so on).

“Price increase are there across offerings like steel, cement, copper and even labour charges. And developers will have to pass on the cost increase again on to home buyers to protect margins. So if the geopolitical tensions persist, there will be an at least 10 per cent increase in home prices over existing rates,” Harsh Vardhan Patodia, President, Confederation of Real Estate Developers’ Association (CREDAI), told BusinessLine.

Price hikes in Q3

Godrej Properties’ MD and CEO, Mohit Malhotra, during their Q3FY22 earnings call in February said: “Yes. We have taken price hikes already across projects and in most of the geographies.” For instance, Godrej’s Pune project was launched in Q3; and there is one next to it launched in Q4; where “there’s a significant price hike”.

DLF, India’s largest real estate player, after ts Q3FY22 analyst call, said that in one of its super-luxury projects, it witnessed “good demand”, and launches in one of its upcoming towers have been increased “about between ₹2,000 and ₹3,000 higher than the previous launch”. The company reported a record sales bookings of ₹2018 crore in October-December quarter, a near 97 per cent rise YoY.

New construction to be hit

Fully-built or ready-to-move homes may not see an immediate price rise, but new constructions will definitely feel the pinch of increased cost.

A top official of a Bengaluru-based listed developer, while requesting anonymity, said it was expecting 10 per cent rise in some finished property prices set for delivery in Q1 FY23; new constructions (buildings were construction will start in the next quarter) will see 10 -15 per cent price rise.

Mumbai has been one of the more mature markets and hasn’t witnessed drastic price shifts, as compared to Pune and Bengaluru where price growth is at a much stronger pace.

Mumbai-based Xanadu Realty’s Vikas Chaturvedi says the ongoing conflict between Russia and Ukraine has resulted in an abrupt rise in oil prices globally, and India has felt its effect as higher transport costs have impacted the supply chain.

“There is a thrust needed in real estate to cushion its impact on momentum as the current cost escalations can really affect the already stretched bottom lines of real estate companies.,” he said, adding that ready-to-move-in inventory has provided “some cushion” to developers. He noted that the Mumbai Metropolitan Region market is expected to witness gradual price appreciations.

Published on March 19, 2022
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