Shew Singh, VP Sales, 360 Realtors, makes a point
In the wake of the 2nd wave, business activities came to virtual closure in the country and the economy entered a state of a jolt. Real estate also suffered as demand plunged. However, currently the silver lining is that cases have been controlled and the economy is now reviving. Shortly, the numbers will restore.
When a gigantic crisis like this unfolds, the impacts are multifaceted. The impact is not just economic but also psychological. Buyers who were earlier thinking of buying homes would now prefer to wait and watch, anticipating a price cut or increased discounts. Though the expectations have a logical backing, the ground realities are contradictory.
Most of the developers who were marred by the credit crunch and labor shortage are now facing the heat of a hike in construction material prices. From steel to cement to bricks, everything is at its all-time high. Amid such spiraling prices, waiting long may not be the best possible alternative.
Steel prices rising sharply: As international steel prices are soaring, prices in India have also risen sharply. The price of a ton of TMT steel bar is around Rs 72,500, significantly up from Rs 53,000 a year before. As global demand is rising fast, many Indian manufacturers are directing their produce to international markets. This phenomenon is not going to stop soon and It will further push prices upwards, thereby accelerating the cost of construction.
Steep jump in cement prices: Just like steel, cement prices are completely reliant on market forces. Retail price per bag has significantly jumped to Rs 460-520 in June, up from Rs 420- 460 in May. Prices are rallying at the rate of 10-12% every month. This might be a positive sign for investors betting on cement stocks but would not augur very well for real estate in India. Cement alongside steel is one of the most frequently used raw materials in construction. A rise of Rs 50/bag will result in a price hike of Rs 20/sq. ft. Developers have alleged cartelization amongst cement manufacturers as a catalyst for the steep upturn in prices. However, cement manufacturers have refuted these claims and cited the rise in input cost for the upswing.
Brick prices on an upswing: Marred by limited supplies, brick prices in India are on an upswing. Presently, the price per cubic meter has reached Rs 3,250, climbing swiftly from Rs 2,950 a year before. Most of the kilns were closed during the lockdown and have resumed production just now. This will continue to pressurize the supply resulting in a rise in demand. As kilns are still doing brisk business, any contraction will be a surprise. Similarly, sand prices have also reached Rs 5,700 and will weigh down on the realty sector.
No relief in PVC pipe costs either: There is no relief in the cost of PVC pipes either, which are another important constituent in the construction process. Due to a surge in demand and global supply constraints, PVC prices have risen vigorously to INR 129/kg, almost double over the last 12 months. Moreover, the prices will continue moving northwards as input costs are not going to come down due to constraints in polymer supply. An appraised price of PVC will further aggravate challenges faced by developers.
The onslaught of diesel price rise: The Indian construction sector is not going to remain unscathed from the surge in global crude prices. The price of diesel is picking up in India due to pressure from the global price hike. Diesel comprises around 35% of the operating cost of construction equipment and the ramification of a surge in diesel prices will be felt by the sector.
Prices of almost all the raw materials used in construction are trending at their all-time high. Ironically, looking at the supply constraints, the surge in global & domestic demand, and growth in input costs, any correction in prices looks far-fetched.
Developers already are suffering from labor shortages and a credit crunch and a further rise in raw material price will worsen their challenges. Caught in a crossfire, developers would have no option but to pass on the hike in prices to homebuyers.
Homebuyers need to act a little smart at the moment. Although expecting a price cut may be tempting, one should not be taken aback if it turns out the other way. As input costs are rising, the price per footage of properties is bound to rise.
To hedge against any unexpected rise, it is advisable to make a move now. Especially fence-sitters who are waiting for a while, anticipating a price cut. Prices presently are at their low. Moreover, there are plenty of attractive schemes alongside a lowered rate of interest. This may be one of the best times to buy! Sometimes, it is not the logic but the underlying counter-logic that influences the best decision.