Builders set to raise housing prices as rising construction cost dents balance sheets

Over the last one year, developers’ average cost of construction has risen by 10 to 12 per cent, owing to higher input cost due to supply-side constraints. This surge in cost comes at a time when developers have been under pressure due to higher debt and liquidity concerns over the last few years. 

The cost of key materials, like cement and steel, has risen by over 20 per cent yearly as of March 2022. These constitute a predominant share in the total cost of construction. So far, developers have been cautious about increasing prices as the market is recovering from the aftermath of COVID-19. However, developers have now started feeling the pinch of rising cost and started reviewing their pricing strategy.

“With rising material cost, developers will be compelled to increase prices as construction materials account for about two-thirds share in the total cost of construction. Developers have already been operating on thin margins over the last few years. The rising cost will impact developers in the affordable and mid-market segments relatively more as they are already operating on lower margins. With inflation of Wholesale Price Index (WPI) and material cost, both seeing a double-digit rise, the cost of construction can rise by a further 8 to 9 per cent by December 2022,” notes Ramesh Nair, the CEO (India) and Managing Director, market development, Asia, Colliers.

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