Realty sector in Karnataka faces heat from rising input prices

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) interacted with around 150 people from the industry across Karnataka, including builders, contractors, developers, building material manufacturers, traders and real estate consultants to ascertain the impact of soaring construction prices and labour deficit on the state’s real estate and construction sector.

About half the respondents said upward spiralling costs of significant construction materials has been putting great pressure on project execution as they find it difficult to keep their margins intact,according to an ASSOCHAM statement.

Steel,cement and labour are key components and they alone make for almost 75 per cent of overall construction cost.

All raw materials have been hit by rising prices, besides sharp rise in lending rates by banks has badly hit the sector, said majority of construction material manufacturers and traders, adding they are cutting down production instead of passing on the raise in raw material cost to end consumers.

"Construction material manufacturers and traders are not only coping with eroding profit margins but reportedly their stocks have also lost the market capitalisation by 15 to 20 per cent over the period of last four to five months," highlighted the ASSOCHAM survey.Over 30 per cent of respondents said labour crunch is the biggest hurdle in development as they are grappling with shortage of skilled labour since various government projects like Jawaharlal Nehru National Urban Renewal Mission  and National Rural Employment Guarantee Scheme are encouraging migrant labourers from states like Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan to shift from private employment.
Slow progress of real estate and infrastructure industry in the state is another significant reason as to why migrant workforce prefers staying and working near their native place for better stability over unsecured, labourious construction work, said the respondents.
"Introduction of technology like pre-fabricated buildings, brickless technology is a feasible solution to aid faster construction and counter the labour crunch faced by the industry, considering the labour intensive nature of the construction practices across India," said D S Rawat, secretary general of ASSOCHAM.

About 55 per cent of respondents representing real estate firms said access to capital is getting difficult by the day as banks have reduced lending to realty players, forcing them to take money from expensive sources.

Almost all associates, builders and developers interviewed by ASSOCHAM said it is a double whammy as their current projects are getting delayed by 12 to 18 months and are witnessing slowing sales as their losses rise.

ASSOCHAM foresees revival of real estate projects across India with onset of the annual festive season during September-October.