Construction Industry News
The real estate and construction sectors together make up the second largest employment provider in the country, after only the agricultural sector. In terms of foreign direct investment (FDI) inflows, the real estate sector ranks third. The real estate sector's contribution to the country's GDP is expected to increase from 7 percent in 2020 to 13 percent in 2030. Hyderabad is the best in real estate sales. Moreover, real estate sales in Bengaluru, Mumbai, Delhi, Chennai, Ahmedabad and Pune have also experienced significant growth in recent times.
But the effect of the rise in commodity prices has put real estate developers in trouble, forcing them to raise real estate prices. As a result, buyers will now have to pay between Rs 2 lakh to 10 lakh more for buying a house or residential apartment. Raw material costs are seeing an average increase of 45% which is the main reason for raising property prices from Rs 4,500 to Rs 6,000 per square foot. Real estate companies are now seeking government intervention in this matter. The Confederation of Real Estate Developers Association of India (CREDAI) has decided to approach the Union government to discuss the price increases associated with RERA registered bookings. This is because the rise in raw material prices affects the construction costs of projects already booked.
The constant rise in commodity prices is a major challenge to the real estate industry's ability to deliver high quality projects on time. The fluctuating market value of these commodities is expected to cause a high project risk for all stakeholders such as suppliers, contractors and clients involved in the construction of a real estate project. Demand for all types of housing, coupled with inflation, limited money supply and high commodity prices, has presented a serious challenge to real estate companies. Therefore, improving real estate delivery within budgeted time, cost and quality expectations, along with taking stakeholder satisfaction and raw material costs into account, has become critical.
Since 2021, construction costs have increased by about 35 percent and labor costs by almost 25 percent. Furthermore, the increase in the fuel price has a significant effect on the real estate sector. A shortage of coal is also one of the reasons. Since RERA has been enforced in the country, developers are unable to raise real estate prices after signing an agreement with the buyer. This increase in raw material costs will therefore seriously affect the viability of the real estate sector, which is already suffering from the massive effects of the pandemic.
A joint approach is needed to tackle this increasing concern. The government needs to step in and keep an eye on the cost of steel and cement to make sure these materials are commensurate with the cost increase of their inputs. The financing costs of construction financing should be reduced. The government should introduce equal interest rates for construction and housing loans. In addition, the government should reintroduce the input tax credit (ITC) as the high price of commodities and the resulting rise in GST impose a huge financial burden on the real estate developers.
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