Slowing Down of Indian Real Estate Sector with Increase in Construction Costs

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An Assocham study conducted to find the current trends in Indian construction industry has revealed a slowdown in real estate sector because of the irregular rise in construction costs. Increase in construction material costs by over 30% since 2009 and shortage of workforce of about 40% have been found as the primary facts for the delay or cancellation of several construction projects throughout the country.

The survey, conducted between April and August 2011, included opinions from about 1,500 players of the industry, including building material manufacturers, contractors, developers, traders and real estate consultants from Ahmedabad, Bangalore, Chennai, Chandigarh, Delhi-NCR, Hyderabad, Lucknow, Kolkata, Mumbai and Pune. It has been found that rising global demands for goods and commodities along with increase in transportation and energy costs have been responsible for rise in construction costs. In addition, cost of wages of labor has been increased with inflationary effects such as abnormal rise of food prices and basic cost of living.

Increased interest rates are found to be another considerable factor for the slowdown of the real estate sector. Any further increase in interest rates may stop the construction projects because of the rise in chances of default in the repayment of loan by realty players. With these different reasons, the profit during April-June 2011 is found to be reduced by 19.5% from the corresponding period last year. Even the contribution of the sector to the GDP of the country which was about 8.1% in the last fiscal year is likely to be declined to about 8% in 2011-12.

Source: ET

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