Covid-19 had severely impacted every sector of the economy in India, real estate was no different. Property rates remained under stress after the outbreak of the pandemic in early 2019, till around mid-2021. However, prices slowly and steadily started appreciating towards the latter part of 2021. There were Government initiatives and reforms that propelled the otherwise lull real estate sector.
Why are property prices rising in India?
Economic Recovery/ Rise in Demand
There has been a handsome recovery in the economy post the pandemic. The housing market is now a buyers’ market. The pandemic has taught everyone to own a home, thanks to the Work from Home (WFH) concept. The consumer preferences are tilting towards ready homes.
The third wave of the pandemic did not dent business confidence and investors mostly were unperturbed this time.
Soaring Oil prices
Average house prices are also going up partly as oil prices are rising due to the ongoing Russia-Ukraine crisis. Transport costs have blown up due to increased oil prices taking the cost price of almost every commodity up.
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Rise in Cost of Raw Materials
A steep jump in the prices of key raw materials like Cement, Iron Steel, etc, has compounded the problem further. There has been a massive price hike of 50-100% in the raw materials used by the real estate sector like steel, cement, and PVC pipes in the past few months. These items also form the largest chunk of raw materials used by the industry players.
Steel is a major raw material in the real estate sector and the sharp increase in the prices of this key input has severely affected the final pricing of properties in India.
Since January this year, there has also been an increase of about 15% in the prices of Piping and Insulation materials as a result of an increase in the prices of Resin and Polymers. It has limited the builder’s capacity to come up with new offers and give any discount to their customers.
As per industry sources, the Hot Rolled Coil Steel prices have remained above the Rs 60,000 mark for most days in May, which is about 75% higher as compared to the average prices of May 2020. Even compared to April 2021, the prices of this category of steel have gone up by around 10%.
The global rebar prices have crossed USD 895 now which used to be USD750-760 in March this year. This substantial increase is making price matters worse for the real estate industry.
Apart from this, Copper and Aluminium prices have also increased, which has impacted construction costs. Cement prices have seen a massive hike of about 28% in a year.
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The cost of supply materials has increased
Project delays have also occurred as the supply of building construction materials that India imports from China is hampered amid rising Covid cases. Housing projects that rely heavily on supplies of fixtures and furnishings from China are seeing delay.
The recovery seen in the real estate sector last year was due to the promotional offers by the developers. So, it is a major buyer advantage to still see such promotional offers happening now despite the price rise for raw materials.