Ramesh Nair on The Impact of Rising Construction Cost

Amidst global concerns, crude prices have been spiraling, touching a multi-year high of USD 139 per barrel earlier this week. In just two weeks, brent oil prices have risen 29%. A continuous increase in crude will push up the domestic fuel prices. This will have a bearing on the transportation costs that account for up to 20% of the total construction costs.

At the same time, steel prices have risen by about 17% in just a week, with cement prices too rising. The combined impact of this surge in input costs is likely to escalate cost of construction and thus impact pricing in the real estate sector.

Overall, the increase in raw material costs can lead to price escalation, especially for under-construction projects. This could dent sentiments in the market at a time when the residential sector has been seeing a revival in demand across the segments. Moreover, in the absence of strong incentives in the recent Union Budget 2022-23 for developers, they may need to pass on the likely hike in raw material costs to the end-users. Overall, there could be a cautious sentiment amongst homebuyers until prices settle.