Real estate developers eye up to 10% price hike as rising input costs eat into profits

Puravankara’s engineering teams, the company says, have been hard at work trying to offset costs by optimising use of raw material and mitigating construction waste. However, several reports suggest that developers across the board may not escape the scourge of cost escalation.

According to a study by the Confederation of Real Estate Developers' Associations of India (CREDAI), nearly 78 percent of 1,850 developers surveyed predicted that they expect price hikes to the tune of 10 percent, to offset a projected 20 percent increase in costs across the board. Nearly 46 percent of these developers, in fact, said they expected a delay in project timelines too.

However, most A-grade developers don’t foresee project delays to be a concern for the moment. “Our delivery timelines have not been severely impacted,” said Dhaval Ajmera, Director, Ajmera Realty & Infra. “We expect a slight delay of about two to three months, but this is not a major impact — we have not stopped construction.”

However, even at Ajmera, a price-hike is inevitable as the company has revised prices upwards by 5 to 10 percent, to offset a 10 to 15 percent rise in costs. “The bulk of the pressure we are facing is felt in our affordable and mid-range housing portfolio in Bangalore, Pune & Mumbai,” Ajmera adds.

Other developers agree that the impact of the rise in constructions costs is majorly felt in tier-2 and tier-3 towns. “The percentage of increase in the input prices compared to the selling price per square foot is unprecedented,” the CREDAI survey observes. Developers say they are left with no other option but to pass on the rise in costs to the end consumer.

“For the last year, we were able to absorb rise in cost of construction to steer the industry’s growth after the pandemic,” said Harsh Vardhan Patodia, President, CREDAI. “However, with thin margins, this will eventually have to be passed on to the buyers, which may not augur well for the industry’s growth momentum,” he said.

CREDAI has, in the recent past, made a series of recommendations to the government as a means to mitigate the rise in input costs, including GST input credits and stamp duty discounts.