Little room to cut prices, say realtors

After Commerce Minister Piyush Goyal’s warning to cut cost and sell, real estate firms on Friday retorted by saying they can’t reduce prices as input costs for building material such as steel, cement, iron etc. and labour has nearly risen up to 30% in the last years.

The builders have instead, suggested the government should cut interest rates on housing loans to make it affordable for the common man.

Many Bengaluru-based builders that DH spoke to said there is very little room to cut prices in some selective projects.

“Even before Covid-19, the real estate sector has been delivering under deep distress - the withdrawal of input credit leading to an 18% hit to our margins, increase in steel and cement rates by 40-50% owing to price cartelisation and unfair trade practices by the manufacturers among others. Even the transmission of interest rates, that would have helped lower the cost of capital, not only for developers but for consumers as well, has not happened,” said Koshy Varghese, MD, Value Designbuild Pvt Ltd, a Bengaluru-based realty firm said.

This is an assessment that Suresh Hari, Chairman, Confederation of Real Estate Developers Association of India (CREDAI) agrees with. He said the industry is facing a huge rise in input costs and labour charges over the last three years. In addition, they are also facing fund crunch post demonetisation and GST implementation. The industry is yet to recover from the slump witnessed after demonetisation.

“Under such circumstances, it would be very difficult to bring down prices and sell the inventory,” he said.

The prices of key inputs such as steel, cement, land and labour costs have gone up in the range of 9%-30% in the last four three years.

The prices of cement have increased 19% to Rs 410 per bag (50 kg) in 2020 from Rs 345 per bag in 2017, while the prices of steel have risen 30% to Rs 58,800 per tonne during the same period. The land cost has gone up by an average of 9% to Rs 5,814 per sq. feet in 2020 from Rs 5,330 per sq. feet in 2017.

“There is very little room to cut prices – in selective projects – as prices of raw materials have gone up and our margins are very low. There may be some builders who are overleveraged and are having bad financial position may go for cut in prices,” a senior executive of a listed real estate firm, who did not wish to be named said.

The labour charges have gone up by an average 44% to Rs 1,300 per day compared to Rs 900 per day three years ago, Varghese said.