Jatin Shah, Chief Technical Officer and Managing Director, TDD, Colliers India, discusses the various aspects of the construction business that are getting affected by the fluctuations in cement prices and input costs.
How has the rise in cement and building materials costs impacted your business?
Cement price as per last report has risen by about 9 per cent in October 2022 compared to March 2022. Other components like steel, aluminium, copper etc., which are significant contributors
also remain volatile. The construction cost has gone up due to various factors like labour cost and cost of transport coupled with material
price volatility. This remains a concern for the developer, contractors and will continue to impact the industry.
As the costs are expected to remain volatile for a few more months, is there any change in your strategy or approach towards the launch of new projects?
The volatile market will impact developers.
The launch of projects by grade A developers will not be impacted as these developers do command a premium. However, the projects in tier II cities and grade B developers will witness a restraint unless there is some stability in the market, since they operate on thin margins. Apart from on-going Russian-Ukraine conditions, we may observe challenges due to a new surge in Covid-19 infections in some countries.
Tell us about the impact on the timely delivery of developer projects.
Developers (grade A) will continue to deliver their projects. Thanks to RERA and incremental involvement of end buyers and investment from funds, projects will be delivered with only small delays. The impact, as mentioned earlier, will mostly be on the grade B developers or the projects planned in tier II cities where possibly a wait and watch policy may happen.
How has consumer behaviour changed with a change in property costs? Do you expect the demand to decrease?
The residential sector has seen a good run
since the pandemic. Sales momentum has remained intact despite the rise in construction costs and property prices, led by robust demand for home ownership and schemes offered by developers during the festive season. However, led by increased property prices and rise in interest rates, we might see some moderation in demand in the short term. The demand might see a drop in affordable and mid-segment, while the demand for the luxury segment is expected to remain firm.
What is the major challenge that you have come across with the rising costs and how are you combating the same?
A volatile market leads to hedging of prices.
We recommend the developers to remain watchful for bulk procurement and approach projects with just-in-time approach, tweak contracts to bring in more materials linked to basic prices and take contractors into confidence. The transparency between developer and contractors at this stage will insulate both from the issues of fluctuating prices. Additionally, the selection of material, of suppliers and vendors should be reviewed holistically and not only be driven by the ‘lowest price’ concept.
How do you envision the future of real estate development and consumer behaviour with the rising cost of cement and other construction materials?
Real estate investments will continue to remain in focus and a preferred investment vehicle. Focus may shift to investments in grade A assets or projects by grade A developers where end buyer / user has the confidence on projects being
completed in time and with quality. While developers are expected to step ahead with caution, consumers might also adopt a wait and watch approach for decision making.
-Kanika Mathur