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Spiralling project cost may slow down realty growth

Prices of construction materials such as cement, steel go up; projects getting delayed owing to shortage of labour and aggregates

Published: 20th July 2021 05:49 AM  |   Last Updated: 20th July 2021 05:49 AM   |  A+A-

real estate, apartments, buildings

For representational purposes

Express News Service

KOCHI: Rising input prices, acute labour shortage and delay in completing projects due to the lockdown restrictions have led to a steep rise in project cost forcing the realty firms to jack up prices. However, the industry is worried that a hike in prices may slow down the market as the economy is yet to recover from the Covid blues.  

The price of steel has gone up by 40%, while the rate of cement has increased by Rs 60-Rs 80 per bag. Labour wage has gone up by Rs 100. Apart from this, the delay in project implementation caused by shortage of labour and aggregates has added to builders’ burden. 

“There is an increase of Rs 850 per sq feet in project cost which has forced the industry to hike apartment prices. We are expecting a hike of 10 to 15% in unit cost. However, the market condition is not favourable. If the situation improves and there is an increase in NRI arrival the sector may recover. There is demand in the market and we are getting enquiries, but the conversion rate is low,” said Asset Homes managing director V Sunil Kumar.

The price of steel which was in the range of Rs 45-Rs 48 in 2020 has gone up to Rs 75 per kg. Cement price which stood at Rs 340 last year has crossed Rs 400. Besides, the delay in completing projects caused by yearlong lockdown led to a hike in project cost. However, with the banks restructuring the home loans and deferring repayment for two years there is hope in the industry. 

“The police and health authorities forcefully sent back the migrant labourers employed by construction companies during the first lockdown. Most of these labourers are yet to return. This has badly impacted ongoing projects. As the projects got delayed, the interest component of the loans availed by builders shot up pushing the sector into a crisis. This will reflect in the housing prices,” said CREDAI executive committee member MV Antony Kunnel.

Though the response was poor during the first lockdown, the sector is slowly recovering, said an officer at the home loan division of State Bank of India. “We targeted a growth of 20%, roughly around Rs 4,500 crore in 2020-21, but achieved only Rs 2,900 crore. Though we could not achieve the target, the sector is recovering from the slump,” said the officer.

As per the registrations department there is an increase in the number of property registrations in the recent months. The state reported 24,454 property registrations in May 2021, and the number went up to 64,306 in June. According to an officer, the number will go up if the government relaxes the Covid restrictions. However, industry insiders said most of the registrations could be in the unorganised sector.

Experts in the construction sector opine that the government should infuse funds into the infrastructure projects to help the economy revive. “The construction sector is labour intensive and serves as a catalyst for the economy. If the government starts implementing some of the big ticket projects, it will help to build confidence in the sector. The GST component of the cement should be brought down to control the spiraling rates,” said construction consultant V Vinod Kumar.

The aggregate suppliers are also struggling due to the slump in the market. “We had survived the first lockdown because there was hope that the situation will improve soon. But even after one and a half years the construction sector continues to be in a standstill. Aggregates are available in the market but demand is very poor. I have approached the bank to restructure my home loan and has availed loan for one of my trucks. I have put another truck on sale as debt burden is rising. If major builders restart their projects there will be a positive impact on the sector or it will ruin people like me who have invested heavily in this sector,” said an aggregate supplier.



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