Real Estate

Reverse migration, delay in projects and rise in costs loom large over realty projects

Monika Yadav New Delhi | Updated on May 10, 2021

Labour crunch is also leading to a crisis of confidence among home buyers

Who could have fathomed the rage of the second wave of Covid-19 when things had just started looking up for the real estate sector ?

Now with 30-40 per cent labour shortage in one of the critical sectors of the economy, experts see another delay in projects by 3-6 months on account of likely reverse migration and cost escalation by at least 10 per cent, due to supply constraints and fear of cartelisation by suppliers and increase in interest cost.

First wave

Reverse migration is again becoming a reality in the real-estate sector and, according to experts, had this been addressed in the first wave itself, things wouldn’t have been as grim as they are now. Industry veterans say it is difficult to convince labourers about the economic lockdown, which is certainly not going to happen this time, and about the likely spread of virus due to their movement. According to Ghanshyam Singh, a Noida-based labourer from Jharkhand, though he is being provided three meals a day with basic accommodation at the site, he is wary about another lockdown and is currently perplexed whether to move out or stay back as for him survival is more pivotal than earning money at this point in time.

“Currently we are in the state of dither due to uncertainty around another lockdown. We want to avoid the situation we faced in the first wave, so we are thinking whether to stay back or return to our native place,” he told BusinessLine. Meanwhile, Ravi Sinha, real estate expert and CEO and MD of Trac2Media Research, said that if real estate developers been sensitive towards labourers in the first wave of Covid, things would not have been as challenging as they are today.

“This labour crunch is leading to a crisis of confidence among home buyers as well since the project delays are inevitable now, with supply hurdles also being a reality. This calamity will also dent the bottom lines and profit margins of the developers. The vaccination and labour welfare, which ideally should have been an intrinsic part of the CSR, has not moved beyond the headline management on part of developers,” he said.

Cartelisation

There are also fears of cartelisation by cement companies, according to the sources within the industry who did not want to be identified. In the first wave there was a huge cartelisation in the input cost of the material such as cement and steel. And the cost of the projects increases majorly because of the hike in input costs.

“There is already a labour shortage and everybody is waiting for labour to come back to make up the time. Cost escalation is inevitable, and we see at least 10-15 per cent of increase in cost. Right now, there is not even a clarity as to how long this labour shortage will persist. We are trying our best to retain the labour by providing meals and accommodation and other amenities so that they don’t have to travel. We are also taking care of their personal hygiene by providing them with kits having soaps, shampoos, sanitisers and oil.

“But it is very difficult to persuade them as they haven’t forgotten about what had happened during the first wave,” Amit Modi, President, CREDAI, Western UP and Director, ABA Corp.

According to Mohammed Aslam, President, ANAROCK Capital Advisors, there may be a delay of at least 3-6 months in project completion and a rise in cost of at least 10 per cent, mainly on the back of interest cost as developers have taken construction finance from NBFCs and other financial institutions.

“After the first wave of Covid, since September last year, developers were optimistic, and they went ahead to book steel, cement and other inventories for construction. The idea was to complete the project at the earliest to give confidence to the customer, but now with the delay there will be an increased interest cost on the inputs purchased,” he said, adding that nobody had accounted for the second wave so they hired people in sales team and labourers and brought back those who had returned earlier.

Published on May 10, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor