Overhang of Real Estate Projects:
The Confederation of Real Estate Developers Association of India showed an indication of worry about the increase in the expense of steel, cement, and other raw materials. They also stated the chance of an increase in housing prices around 10 to 15 percent to neutralize the increased design cost of the buildings.
Due to the high level of air pollution in Delhi-NCR, there was a ban on constructing homes before the two waves of the pandemic. Sales of homes are still less in a couple of years. Can real estate developers afford to inflate housing rates? Let us know in this article.
Inventory Overhang of Real Estate Projects
According to real estate experts, there are11 lakh unsold housing units in India. Out of these, approximately 10 percent of units are constructed. Considering two phases of lockdown in the country have not allowed reducing unsold inventory by 50 percent.
This overhang of inventory is very big despite limited construction activities in the country. There is increasing pressure from lenders to improve cash flow by reducing unsold housing units. Due to the pressure builders may be forced to stick at the same prices, at least for now, they said.
Pankaj Kapoor from the Liases Foras stated, the contribution of construction real estate projects is around 92% of the unsold inventory in India. This inventory is roughly for 53 months. The 1 lakh fully constructed houses for about 15 months of inventory.
He further explains, an overhang in inventory for under-construction real estate projects gives us suggestions that builders can’t increase prices immediately, because it may affect demand for houses badly.
Community of builders thought of the increasing price for the last half-year, but could not implement the price hike, because of high inventory overhang.
Pankaj Kapoor also said, there is better traction in the market as there are constructed real estate buildings. However,
Available inventory with developers is only about 8%. The market will also depend on under-construction buildings.
Market Elasticity of the Real Estate Projects in India
Few popular real estate developers may have the wherewithal to hike project prices however the market is not in their favor as if they Hike the price the sale made it is the case because the market is in hands of end-users, not investors.
Any increase in real estate project price now may impact directly on the pocket of the Buyer, leading to a dip in sales.
Taking real estate market recovery into account, it is run by stamp duty waivers, concessions, discounts. Housing sales will have the impact of a price hike, Kapoor said.
Increase in Prices of Raw Material:
To construct a new building there is a need for basic commodities like cement, Steel, Windows, doors, etc. The price of basic commodities has risen in recent times. It has hiked the cost of real estate projects drastically. There is no other option to equalize hike in commodity prices to hike project price, Irfan Razack told Moneycontrol.
There may not be an increase in the already constructed project price, but new projects under development will have increased price, he said.
He also added positive cash flow and the timeline for project development will have to be insured. In addition, we will also have to focus on saving costs.
According to CREDAI, we have been noticing a sharp rise in the cost of raw materials over the last 12 months. It seems the prices will not consolidate shortly. It could lead to pressure on real estate developers to hike prices.
CREDAI requests the relevant ministry and the government to handle the issue to win against rising prices of raw materials.
The same issue is addressed by the SilverGlades group.
Have Cement Costs Increased?
According to goods experts, Moneycontrol communicated to the backchannel, and have suggested a dip in cement prices in the Northern part of India, it is because of the ban on construction on account of high pollution.
Since September end, cement prices have risen by 30 to 35 rupees per bag, and in mid-November, there was a dip of 10 to 15 rupees per bag.
To balance market share, they will try to reduce cement costs in other markets. However, it is not permanent. There was no reaction from ACC and Ambuja Cement.
There was the same reaction about cement prices by care ratings.
Conclusion:
COVID-19 with two phases of lockdown and the high quality of air pollution in the northern part of India has affected real estate developers badly. These two factors softened the demand for houses and constructions of real estate buildings in the northern part of the country.
The rise in raw material costs forced real estate developers to hike housing prices too. However, it is temporary. We can have everything stable with passing time.