Runaway Construction Cost Bleeding Builders

Increasing cost of construction bleeding real estate developers
Eduard Gross/Unsplash

Despite a resurgence in housing demand and improving sales across the country, the real estate builder becomes a very worried individual every time input cost is mentioned.

Care To Explain?

Let's say a vendor at the bazaar sells onion kachoris for INR 10 and after deducting all costs, he is left with a profit of INR 2 apiece. 

Let's throw in the great Indian rope trick and onions are suddenly 100 bucks a kilo. Our man is selling kachoris at INR 10, while his new cost, thanks to the onion is now INR 11. So each kachori he sells is costing him a buck from his pocket. 

Now add high demand, like an office party order, where the admin bloke is asking him to price the kachori at INR 9, because he is buying 50. Get it? It's painful. 

Is There A Solution?

In fact, there are two. One, the vendor could increase the price of his kachori by 2 bucks to maintain his level of profit. However, in the bazaar, that's a dangerous move with all that competition. 

Two, he could reduce the amount of onions going into the recipe to keep his cost at INR 8. 

Real estate builders too are facing a similar dilemma, with construction cost going up rapidly and option one - reducing cement and steel in the building - doesn't exist. 

Result? Home prices are going to go up. 🔼

Show Me The Numbers

Industry voices say that average construction cost, which earlier ranged from INR 1,300 to 1,500 per sq. ft. now stands at between INR 1,800 to 2,200 per sq. ft., a rise of almost 40%. 

This increase of INR 500 per sq. ft. is bound to affect the final price of the property. 

Runaway core construction material costs - steel is up by almost 50% and cement by 34% - is leaving builders staring at losses and as a fallout, home prices in many areas, like Nagpur, have gone up by 9%-10% already, silently. 

Fuel price, leading to record transportation cost is the major reason for this inflation, so not just core items but everything - like wires, fittings, and the kitchen sink - are all dearer. 

A respite from this cost heat eludes experts as of now. 

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