Rise in Construction Costs by 18% Affects Real Estate Sector

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The real estate sector of India is found to be hit with rise in construction costs by 18% in 2011 over 2009 as per the PropEquity study. A study was conducted by the PropEquity which is an online data and analytics search platform. It included the analysis of primary residential real estate market in the prime cities including Noida, Greater Noida, Gurgaon in North, Mumbai, Navi Mumbai, Pune and Thane in West, Kolkata in East, and Bangalore, Hyderabad and Chennai in South.

The study revealed an increase in costs of construction components like steel, cement, labor and bricks. From 2009 to 2011, there was an increase in cement cost from Rs. 202 to Rs. 275 per bag (27% hike). The cost of steel faced 13% hike from Rs. 30,750 to Rs. 38,600 per ton from 2009 to 2011. The bricks and labor were found to face cost hike of 31% (from Rs. 12,500 to Rs. 24,000 per 3,000 no.s) and 50% (from Rs. 250 to Rs. 325 per day) respectively during the same period.

The actual residential supply in Hyderabad was found to be 96 million sq. ft. from 2008 to 2010. However, the delivery commitments between 2011 and 2013 was found to include 130 million sq. ft. The study stated that the increase in material cost was unanticipated and could not be escaped. This was forcing the developers to withdraw interest from various construction projects thereby enhancing project execution delays of mid and luxury housing segments. 4,80,000 residential units were estimated to face execution delays in the country between 2011 and 2013. As per the estimates of the PropEquity study, about 25,200 units might face execution delays in Hyderabad during the period.

After the recovery of the Lehman crisis in late 2008, the residential market was found to be great in 2010. Many affordable projects and a healthy participation from the mid and premium residential segments were witnessed. A large volume of units was sold from 2008 to 2010. However, it was reported that the escalating input costs had become a new challenge for developers and had an effect on real estate sector.

Source: Economic times

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