Construction Industry News
The cost of basic construction materials - steel and cement - has risen 35% in the past two months, hurting developers' profit margins.
While the steel cost has reached Rs 80,500 per ton, cement prices are Rs 430 per bag, which adds to the construction cost in the ongoing projects.
According to the developers, rising raw material costs not only affect construction and procurement, but also the demand for new projects. Steel costs hovered around Rs 60,000 per tonne at the end of December while cement prices were Rs 325 per sack around the same period.
Tejas Joshi, president of the Confederation of Real Estate Developers' Associations of India (Credai) Ahmedabad, told media that steel and cement account for an estimated 30% of the production costs of real estate projects. Ongoing projects are negatively affected by the abrupt rise in raw material costs. It will affect real estate developers' revenues as they will not be able to pass the costs on to consumers as the costs for existing projects are fixed in advance.
Rising steel and cement costs are also the bane of construction contractors. Gujarat Contractors' Association (GCA) has a long-standing demand from the government - review of project costs after rising costs.
Even developers are considering entering into talks with the state government and Gujarat Real Estate Regulatory Authority (RERA) to allow builders to change project prices and renegotiate, according to Jaxay Shah, chairman, Assocham Western Region and a developer in Ahmedabad.
In 2020, the average price of steel was about Rs 35,000. This means that costs have more than doubled in recent years, causing product prices to rise. Developers foresee that rising steel and cement costs will impact affordable housing projects as property costs rise.
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