We are Wealth Clinic Team
From the previous year, there has been an increase in the price of around 10 to 12 per cent in the construction sector, causing supply-side constraints due to higher input costs.
As of March 2022, the price of critical construction materials such as steel and cement has increased by over 20 per cent yearly. These constitute a predominant share of the total cost of construction. As the real estate market was recovering from the impact of Covid-19, the developers were very concerned about the increasing prices of construction materials. But real estate developers have considered the situation. According to a real estate consultancy report, they are working on the pricing strategy.
This price increase has come when the real estate developers have been rolling from increased debt and concern for liquidity during the last few years.
The construction materials account for about 2/3rd of the total cost required for construction. The real estate developers will be urged to increase the price because of the hike in material costs. This isn’t the first time developers have had to work very hard to earn a living. The rising cost will hurt developers in the affordable and middle-market segments because they already make less money. With the WPI and the cost of materials increasing by double digits, the construction cost could go up even more by December 2022, says an expert.
Impact on the residential real estate market:
Under-construction projects are going to be under more pressure from rising input costs, which will lead to a higher cost escalation. This will likely slow down project completion, especially if these concerns don’t go disappear.
Residential developers are still making very little money, especially in the low- and middle-income housing markets. These have lower margins and are more price-sensitive than other things. When input costs go up, it can be more difficult for people who make things to pass that money along. This is why.
On the other hand, when it comes to industrial real estate, high-quality industrial and warehousing facilities are already getting much attention from E-commerce companies. According to the report, construction costs are likely to go up because there aren’t enough high-quality buildings available.
Most cities saw a rise in rental prices, with most micro-markets seeing a height of between 5% and 12% over the last year.
Developers have to pay more money, but they don’t want to raise the price for end-users because it could hurt overall demand. However, developers may have to pass on more costs to the people who use their products if the cost keeps going up. People who work in real estate say that developers can get some help from the government with lower import duties. This can help them, especially in areas with low margins.
‘A’ grade developers will be able to deal with the price rise in the market. They may pass it on to buyers, but only if there is much demand. However, smaller developers may want to work with each other on specific projects to help pay for the high costs.
Some experts in real estate think that construction costs will go up by 8% to 9% by the end of 2022 because there are still problems with the supply side. This means that the prices of materials will go up. For people to buy real estate before prices go up, they should do so now.
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