Shraddha Kedia-Agarwal, Director, Transcon Developers, brings in the perspective of developers as they tackle the issue of rising cement costs and the overall impact on consumer behaviour.
How has the rise in cement and building materials cost impacted your business?
The rise in cement and other building material costs have had a major impact on our business. Construction costs have risen significantly as budgets have remained fixed, resulting in a decrease in profitability. The prolonged delivery of materials has also caused a delay in projects and a requirement for increased cash flow during the construction phase.
As of March 2022, construction costs had gone up by 10 to 12 per cent year-on-year due to a 20 per cent spike in key material costs such as cement, steel, aluminium, copper and fuel. This was further exacerbated by geopolitical issues and inflation leading to increased labour costs. Developers are particularly challenged, as they have to deal with high levels of debt and liquidity constraints.
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?
Though we are actively monitoring market conditions, we are not planning any change to our approach on launching new projects. However, we are increasing construction budgets and focusing more on external amenities in order to provide more value to buyers. This may result in increased costs, but the extra benefits provided should outweigh this cost.
Tell us about the impact on timely delivery of developer projects.
The constantly increasing prices of building materials are a major challenge for the construction industry, as they can lead to delays in project completion and reduced quality of work. Fluctuations in the market value for these materials present a significant risk for all stakeholders involved, such as suppliers, contractors, and clients.
There is an increased lead time for materials, and suppliers are hesitant to accept orders due to the uncertainty of the market. This means that material contractors are further apprehensive about accepting offers or quotation requests. As a result, developers may need to adjust their plans in order to ensure timely completion of projects.
How has the consumer behaviour changed with change in property costs? Do you expect the demand to decrease?
The changing property costs have certainly affected consumer behaviour. As prices increase, consumers may be more hesitant to purchase and less likely to spend beyond their budgets.
The real estate industry has been adapting to the pandemic since its onset, and the second wave of infections had further compounded their challenges. In particular, there has been a steep rise in the cost of key raw materials such as steel, cement, solid blocks, nails, binding wires, and plywood. This increase has been as much as 100 per cent in some cases compared to last year, severely limiting the developers› ability to offer discounts to their customers.
The decrease in demand may drive developers to offer more amenities or better value proposition in order to remain competitive in the market.
What is the major challenge that you have come across with the rising costs and how are you combating the same?
One major challenge with rising costs is that companies must make the right decisions on how to optimise their manufacturing processes, implement cost-saving measures and negotiate supplier terms in order to reduce their input costs without sacrificing quality. This is why selective manufacturing and value engineering are important, as they allow companies to reduce costs while still achieving their desired output. Additionally, fast/advance payments can help companies meet their vendors› needs while also helping them reduce their overall expenses. Finally, a focus on material consumption can provide companies with an opportunity to decrease their costs by reducing their materials used and exploring cheaper alternatives.
How do you envision the future of real estate development and consumer behaviour with the rising cost of cement and other construction materials?
In the future, the rising cost of cement and other construction materials will likely lead to real estate developers exploring alternative recycled materials. Additionally, consumer behaviour will likely shift towards more energy-efficient and environment-friendly construction methods, as well as green design initiatives like zero-waste construction and biophilic design. Real estate developers will also have to look for ways to reduce their material consumption, such as through the implementation of prefabricated structures, the use of intelligent building technologies and the development of holistic sustainability strategies.
-Kanika Mathur