Housing prices bound to go up in medium to long term on rising construction cost
(Bloomberg) -- Indian developers facing project delays, a rise in costs and eroding ability to repay loans needs the government’s support to survive as the second wave of the Covid-19 pandemic hits the realty sector harder than the first wave, according to an organization of the country’s builders.
Housing prices are likely to rise in the medium to long term as construction cost has gone up by 10-20% due to a sharp increase in prices of cement and steel, realtors body Confederation of Real Estate Developers’ Association of India (Credai) said.
The Credai requested the Modi government to come up with support measures for the segment including a cut in various taxes and restructuring of loans for a quicker bounce back of the sector, Harsh Vardhan Patodia, president of the organization said.
The majority of the developers are facing project delays due to labor shortage and delays in getting approvals even as a recent surge in prices of raw materials like steel and cement have contributed to a more than 10% increase in construction cost, according to a survey conducted by CREDAI.
Patodia said the developers will be forced to increase the price as they are not in a position to absorb the rise in the cost of construction material. Prices for existing customers will not be raised, but rates may go up for new sales, he added.
Credai president-Elect Boman Irani said the construction cost has risen by about 15% because of a sharp hike in cement and steel prices. However, he said, a rise in property prices does not mean increased profit margins for developers. "Our margins are getting squeezed," he added.
A nascent recovery in the country’s property sector was derailed due to the second wave of the pandemic. Apartment sales across the top eight cities in India had surged in the three months to March 31 to the highest over the last twenty quarters, according to a note from credit rater ICRA Ltd.
Following the second wave that started in the country in late March, developers said most customers have postponed their purchase decisions. Various financial constraints and a liquidity crunch are further adding to the problem as builders face disruptions in planned collections from buyers, the survey showed.
“We have requested for liquidity infusion, one-time restructuring of loans, across the board six months extension of completion date by Real Estate Regulatory Authority Act, stamp duty reduction or waiver, moratorium extension on principal and interest for 6 months," Patodia said in the statement.
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