I have been receiving messages from various real estate projects in the region informing me of an impending price increase in the cost of apartments.
Within a span of 6 to 8 months, many projects in Zirakpur and Mohali have increased their prices twice. The builders I spoke to tell me that this increase in prices is due to a massive increase in the prices of the raw materials.
In this article, I try to fact-check if this is true or is this a way to increase profits in anticipation of the coming sales after the lockdown is over.
Background
I wrote about the price increase on some projects in Zirakpur and Mohali at the time and another update a few months ago before that.
Unfortunately, I bring bad news for homebuyers again. Almost all the better real estate projects in the Tricity are slated to increase prices by a substantial amount from 1st June onwards.
Why are the prices increasing?
I spoke to a few builders and I was told that the input costs of raw materials had increased substantially in the past year or so.
I am attaching an image of some data that shows how much the prices of raw materials have increased in the past year.
As you can see the prices of most home construction raw materials have increased by almost 25 to 30% on average.
I am getting some construction work done myself and the price rise is real. I spoke to a couple of hardware store owners who told me that the increase in the price of the raw materials has been steady for the past year and that this has hit the middle class and the poor the hardest. Many people have either delayed or stopped their construction work midway due to this increase.
A cement bag which used to cost 300 to 320 rupees per bag earlier is now retailing at 480 rupees. Similarly, steel bars have also seen a massive price increase in the last year. PVC pipes, Electricity supplies, sanitary ware, etc, have all seen a price increase in the past year.
This is a tough time to be a builder at this time. Due to the movement restrictions, the customer is not able to visit sites and make purchases, some labour has gone back fearing another lockdown and the prices of the raw materials have increased. Over and above, the fixed costs such as staff salaries and bank loan instalments have not gone away.
There is only limited scope for the builders to increase prices since the demand is flat but there seems to be no other way.
Which projects are increasing prices?
There are many but if I have to name a few Marbella Grand, Sushma Group Zirakpur, Affinity Greens, etc. are all going to increase prices come June 1.
I hope the market prices for the raw materials reduces in the coming future and the builders decrease the prices just as they are increasing it now.
Impact on homebuyers
Ultimately, all this money is going to come from the pocket of the homebuyers. The sales will also dip in this already deflated market.
One cannot expect the builders to go broke by absorbing these increases in costs. The risk of defaults and insolvencies is a real one considering the current market scenario.
Honestly speaking, this price increase was the last thing the real estate market in Mohali needed. Many people who wanted to book an apartment will now delay their plans. It is very unlikely that the prices will come down even if the prices of the raw materials come down.
The real estate market in the Tricity region is overall very bullish in the long term. Increased prices will dampen the spirits for a bit but sales will bounce back soon or at least I hope so.
Impact on the Real estate market
The real estate market in the Tricity was hit hard during the pandemic last year just like any other industry in the country but the recovery was really impressive and sales numbers were soon back to normal levels within a month or two of the unlock phase.
A recovery was underway but suddenly the second wave struck. Now with the prices shooting up, it remains to be seen how the market responds in the coming months.
A report in Financial express today says:
According to industry sources, the increase in the prices of these items has been as much as 100% in some cases as compared to the mid of last year. Developers say this has limited their capacity to come up with new offers and give any discount to their customers.
Rising cost of raw materials may hit realty growth, hike property prices
Solutions
The government of the day has to check the inflation and the reasons behind this unexplained price increase in raw materials.
The production has not been hit and the transportation of the material is ongoing without any curbs so what explains this price rise in the raw materials cost?
Real estate developers’ association Naredco on Friday urged housing and urban affairs secretary DS Mishra to check the rising prices of key raw materials, especially steel and cement, which, coupled with supply constraints, are impacting construction timelines. Naredco said the industry looks forward to appropriate steps by authorities against what seems to be cartelization.
Source: Financial Express
The real estate sector has been very badly hit due to the pandemic and has not seen much support from the government. There were no policies or tax breaks that could be considered as a major relief to the home buyers.
The state governments also did not reduce the registry or the stamp duty prices. The GST and stamp duty alone adds a whopping 11 to 14 percent to the cost of an under-construction property. The real estate sector is an important sector that is crying for help and relief.
This blog may seem like a rant to some but I am really concerned and surprised because I see a lot of people trying to save every rupee that they can so that they can buy a house and then suddenly the prices increase by an astronomical sum. In the end, the consumer is the loser.
