The cost of construction has recently moved up by at least Rs 500 per sq. ft., threatening to make many projects unviable.
Facing the heat of rising costs of raw materials in wake of the Russia-Ukraine war, real estate developers in Delhi NCR are planning to stop the purchase of raw materials as well as construction work.
According to the CREDAI NCR, an industry body which represents real estate developers, input costs have gone up by a weighted average of about 30% to 40% recently and the cost of a few items has increased by more than 100% in the last 2 years. The sudden and rapid rise in costs has eaten into the thin margins of realty projects and rendered them unviable.
Developers have therefore decided to halt the purchase of materials fearing these elevated costs will ultimately result in projects getting stalled. This is after a similar move by developers in Mumbai and Pune.
“The costs of key raw materials such as steel and cement used in construction have gone up amidst global supply chain disruptions. After Covid, the current crisis is a dual blow on real estate developers as they are finding it extremely tough to deliver projects within the projected timelines and costs. For steel particularly, the situation is so bad that suppliers are not willing to take orders even at elevated prices,” said Pankaj Bajaj, President, CREDAI NCR.
According to the industry body, the recent impact of construction cost is about Rs 500 per sq ft or more which will reflect in increased prices for home buyers for fresh sales.
Bajaj further added, “Steel suppliers are even cancelling contracted supplies citing force majeure and the war in Ukraine. However, builders, while free to increase prices of unsold inventory, are stuck where they have pre-sold the inventory. Perhaps this situation should be recognized as force majeure and prices allowed to be escalated even for sold inventory. Otherwise we are looking at the next wave of stalled and unviable projects.”
Apart from realty developers of Delhi-NCR, the CREDAI members in Maharashtra are also contemplating to stop work as it is not possible to build houses by purchasing raw materials at these increased prices. They have also demanded extension for the closed down projects for completion. For these demands, CREDAI Maharashtra and CREDAI Pune Metro members have written to Deputy Chief Minister and Finance Minister Ajit Pawar and Revenue Minister Balasaheb Thorat.