Cement, Steel costs Cripple Infra Sector

June 16, 2008	(2 votes, average: 1.5 out of 5)  Loading ...
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The construction and infrastructure sector is feeling the heat of rising cement and steel costs following a steep increase in the prices of these primary inputs. Steel contributes about 15-20% of the total cost, whereas cement contributes about 10-15% of the total cost of a project.

Over the past several weeks, construction prices have climbed about 10-15% as the combination of a weak dollar and high crude oil prices filter their way through the economy.

The weak dollar and global demand have caused base materials products to increase, thereby causing an upswing in building material prices. High fuel prices further compound the problem by naturally increasing the transport costs.

According to sources, in the past three months, the cost of construction has already shot up by about 10%. According to analysts, steel prices in the domestic market have gone up by 30% in the last six months, though now they are cooling down.

Steel and cement account for 33% of construction costs and every 50% escalation in the price of these materials will increase the cost of real estate by Rs 75 to Rs 100 per sq ft. The average cost of freshly-developed real estate will end up 8% to 10% higher from original estimates.

Says Vikaas Ahluwalia, director, Ahluwalia Contracts (India) Ltd: “There has been an increase in cement and steel prices which has led to increase in the cost of construction. This has also put a question mark on our efforts to provide affordable housing to middle and lower-middle segment buyers. However, this is not an ongoing price hike trend as it can be attributed to market forces. The mismatch between demand and supply of these materials is expected to be normal soon and the high prices of steel and cement will gradually cool off.”

In fact, this increase in construction cost is also creating trouble for real estate companies. Many of them have either gone back to their drawing boards or are thinking of passing it to the end consumers.

Says Kamal Taneja, MD, TDI Group: “There will be a significant rise in the cost of construction, by about 20%, due to the rise in cement and steel prices. Selling prices of property are expected to shoot up substantially in the near future.”

News Published Under:   Real Estate India |

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