Steel, Cement prices Crush builders

PRLog (Press Release) – Mar 19, 2008 – The "India Shining  " campaign may have deluded the then NDA government and voted it out of power, but builders in the city have learnt no lesson from this. Fed by the buying frenzy for flats in the last few years and also the hype created about Hyderabad, builders have now created far more built-up space in the city than the demand warrants. As a result, they are nowfaced with a situation of glut.

Industry sources estimate that about 5 million sft space is at various stages of construction in and around the city and it is likely to touch about 20 million in the next one year. "Supply is about 20 per cent more than the demand as of now," an industry analyst said.  To add to the builders' woes, this has come at a time when steel and cement prices are escalating - leading to higher costs and less room to negotiate for the builders.
"Most of these projects are likely to suffer. Cement, steel and labour account for a large part of the building cost. Their prices are changing almost every day," C Shekhar Reddy, president of Builders' Forum, told TOI. Builders had of course taken approvals for the space they planned to create and started work on most of the projects before the steel and cement price hike. Faced with ever escalating real estate prices, consumers are now adopting a wait and watch policy.

"There is a feeling that prices have hit the ceiling and from now onwards it will only go down. We are waiting for prices to undergo a correction," says Subhash Chowdhry, a prospective flat purchaser. "Many of us have gone in for gated community projects on the outskirts. The cost we thought of charging when the project was started was Rs 3,500 per sft. Factoring in the rise in costs, we have now increased it to Rs 4,200 per sft and finding buyers has definitely become difficult despite several schemes and freebies," V Srinivas, director of a construction company, said.

While the steel prices doubled to Rs 56,000 per tonne now, cement prices are hovering at Rs 230 per bag. Along with the input costs, the rise in land prices too added to the overall price of space. With the government itself donning the realtor role in most parts of the outskirts by pegging the minimum upset price at higher levels for the land it auctions, private land owners have been setting further improved benchmark prices.

It's not completely true to say that there are no buyers. If the industry supplies a product the market needs there would not be any demand-supply problem," HDFC's regional head Ravishanker said. This means that there is enough demand at realistic prices.


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