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Rediff.com  » Business » Construction costs to surge 17% on rising steel, cement tags

Construction costs to surge 17% on rising steel, cement tags

March 24, 2004 09:36 IST

Real estate builders could be heading towards tougher times with prices of steel and cement flaring up. As per a Confederation of Real Estate Developers Association of India estimate, construction costs may go up by about 17.5 per cent for every 1000 sq ft if the current prices of construction raw materials like steel and cement remain same.

It is estimated that housing construction requires up to 45 bags of cement for every 100 sq ft and 3 to 3.5 kg of steel per sq ft.

At current prices, it translates to Rs 70 per sq ft of cement and Rs 100 per sq ft of steel.

But as most housing contracts have no mention of escalation fees, the developers are not able to pass the burden to customers. However, they could be looking at jacking up construction costs for upcoming housing and retail projects.

"We are not able to manipulate prices of our ongoing projects as we are bound by contracts. This cost escalation may not affect us in the short run but we could face a margin pressure in the long run. Consequently, we will revise prices proportionately but that is not happening soon," an Ansal Properties spokesperson said.

The Rahejas are also facing pricing pressure but they are eyeing for cues from the government. "The real estate associations have urged the government to take immediate steps to curb hikes and the affect is being seen as steel prices have come down to Rs 25,000 per tonne from Rs 28,000," a Raheja Housing official said.

Meanwhile, a DLF official said steep prices are not an issue at present as the market is doing well following good demand. But, builders and consumers will be affected in the long run.

Though most builders are declining to reveal pricing estimates for their next projects, R R Singh, executive director, National Real Estate Development Council, said there could be 10-20 per cent escalation in costs depending on different structures and area.

As of now, builders are following the market driven model but soon they will factor in the higher raw material cost.

CREDAI had called a nationwide real estate developers strike on March 15 to protest against price hike following which the steel producers agreed not to evaluate prices till June 30. But, the builders are still wary and are keeping a watch on the price radar.
Ankita Sarkar in New Delhi