CHENNAI: It seems affordable housing may not be too affordable right now. The increase in the cost of raw materials and labour has had a direct impact on real estate developers. With prices for the less-than-5,000-square-feet projects rising by five per cent, consumers are likely to feel the pinch.
Suresh Krishn, president of the Tamil Nadu chapter of the Confederation of Real Estate Developers’ Association of India (CREDAI) and S Sridharan, chairman of the Urban Development/Affordable Housing Committee, CREDAI National, told Express that the prices have gone up by five per cent for fewer-than-5,000-square-feet projects.
There is however, no fixed data available for large scale projects. Krishn said that most of the categories are 5,000 square feet and below, where the price rise is visible. This would mean the so-called affordable homes would now cost more.
The prices have gone up as affordable housing developers’ profit margins are wafer-thin. This is due to the rising inflationary trends of basic input costs like labour, and raw materials like cement and steel, he added.
“The construction cost has gone up by 10 per cent due to the rise in cement and steel prices,” S Rama Prabhu, State secretary of the Builders Association of India said. He added that this has resulted in the cost going up by Rs 250 to Rs 300 per square feet.
A report by Anarock property consultants said that the profits in the affordable segment is wafer-thin and the target audience of the segment are severely impacted by the pandemic in contrast to premium and luxury category buyers.
Although the profit in the affordable sector is thin, Krishn said, the sales are more in here compared to luxury homes. “This maintains the balance.” He added, “Last two years, the affordable homes were doing better but luxury home sales were not too good.”
However, Krishn refused to quantify by how much the profit margins have reduced. But, will the price rise impact the sector as a whole? A Shankar, Chief Operating Officer, Strategic Consulting, Jones Lang LaSalle (JLL), said the price rise will be positive, and there will be newer products in the offering.
“The second wave paused buying decisions and customers were waiting for the lockdown to get over so they could take a decision towards buying an apartment. This has created a pent-up demand and hence there will be good movement in residential sales,” said Shankar.
While ruling out a decline in prices, he said there will be an increased interest for good products in good locations with affordable pricing. There will be pressure on profits due to rise in raw material costs, but developers will manage to offer a good price to customers, Shankar added.