Cost of raw materials impacts housing prices

Hyderabad: Even though the demand for residential properties has seen a rise in the post-pandemic world, the real estate sector is also witnessing a huge escalation in prices of raw materials owing to the pandemic and also the Russia-Ukraine war.

Reports suggest that the rise in prices of raw materials has led to an increase in housing prices across all major cities, including Hyderabad.

The Housing Price-Tracker report jointly conducted by Credai, Colliers, and Liases Foras suggests that the average residential prices in India rose 4 per cent year-on-year during the first quarter of 2022 after a prolonged slowdown, indicating that the residential market is on its path to recovery.

The prices of raw materials like steel, cement, copper, and aluminum among other things have seen a steep rise in the post-pandemic world and the Ukraine war has further accentuated the issue. Some of the factors that have contributed to the rising cost of raw materials are the increase in demand for infra projects, shortage of local coal, increased power production cost, and increased demand to meet growth.

The industry is also facing logistics issues due to container shortages and price increases by about 80 per cent, says an expert. As per a JLL, Colliers, and Industry report between March 2021 and March 2022, the Brent crude oil has gone up by 70 per cent, aluminum by 44 per cent, copper by 40 per cent, steel by 30 per cent, and cement by 22 per cent even as fuel pricing are increasing.

Urban Living Spaces MD Naveen Mypala said that since 2021, the construction cost has gone up by about 35 per cent and the labor cost has increased by almost 25 per cent. “Increase in prices of raw materials has put real estate developers in trouble, forcing them to increase property rates. The fluctuating market value for these raw materials is expected to cause high project risk to all the stakeholders such as suppliers, contractors, and clients involved in the construction of a real estate project,” he said.

99acres.com chief business officer Maneesh Upadhyaya said the increasing raw material costs due to the Ukraine-Russia conflict kept the builder fraternity worried even as homebuyers were seen visiting sites and closing deals in new homes and resale markets despite lockdowns in January 2022.
Mypala emphasized that as the material input cost is increasing, its impact is expected to be at least 10 per cent to 15 per cent of the increase in price per year.

Hyderabad Market

The Housing Price-Tracker report suggested that Hyderabad recorded a substantial year-on-year increase in prices of 9 per cent in the first quarter of 2022. The average price in the city in the first quarter of 2022 stood at Rs 9,132 per sq ft, which was the second spot after Mumbai Metropolitan Region (MMR).

“Due to the supply and demand gap, prices are low as multiple cement factories are close to the city, which can help in reduced transportation costs. But, this market will get difficult if the prices cross the affordability range of end customers,” Mypala says.