A combination of demand revival and rising construction costs have resulted in real estate prices inching up as developers look to protect their margins. India’s top eight real estate markets have all witnessed a rise in the average capital values of residential properties, shows data from Knight Frank India.
All cities posted up to 7% year-on-year growth in per sq ft prices during the quarter ended March. Prices grew the most in Bengaluru at 7% on-year followed by Pune and Mumbai at 5% and 4% on-year, respectively. The lowest price rise of 1% was witnessed in Hyderabad and Chennai.
Prices of key raw materials have gone up between 20% and 70 percent in the last year. The cost of cement and steel have risen over 20% yearly as of March 2022. These constitute a predominant share in the total cost of construction.
This surge in cost comes at a time when developers had been under pressure due to higher debt and liquidity concerns over the last few years. So far, developers had been cautious about increasing prices as the market was recovering from the impact of COVID-19. However, they have begun feeling the pinch of the rising cost and started reviewing their pricing strategy.
“With rising material cost, developers will be compelled to increase prices as construction materials account for about 2/3rd share in the total cost of construction. Developers have already been operating on thin margins over the last few years. The rising cost will impact developers in the affordable and mid-market segments relatively more as they are already operating on lower margins. With wholesale price inflation (WPI) and material cost, both seeing a double-digit rise, the cost of construction can rise by a further 8-9% by December 2022,” said Ramesh Nair, CEO, India & Managing Director, Market Development, Asia, Colliers.
Last week realtor body Credai-MCHI said housing prices could go up by 10-15% in April due to sharp increase of Rs 400-600 per square feet in construction costs with rising inflation in key commodities like steel, cement, among others.
The developers’ body has also approached the central government with proposals aimed at arresting the rising price of residential real estate for homebuyers amidst rising input costs. These steps include considering giving relief to the industry by reducing stamp duty and GST rates, besides allowing input tax credit (ITC) to developers.
“We will continue to engage in dialogues with various ministries and concerned authorities to consider our recommendations regarding gradual reduction in steel exports, input tax credits being allowed under the GST scheme and the tax-saving option of section 80-IB to be extended to the affordable housing category,” said Dhaval Ajmera, secretary, CREDAI-MCHI.
In Maharashtra alone, home prices could rise by more than 15% because of the sharp hike in ready reckoner (RR) rates announced by the state government last week. Ready reckoner rates give you a standard format set by the authority about the property rates of the area to be followed.
The average ready reckoner (RR) rates in municipal areas which came into effect from April 1 has been increased by 8.8% — barring Mumbai city where the hike is much lower — after remaining nearly unchanged for the past four years.
Source : TOI