Realtors call for Price Control on Steel & Cement

Real estate developers have made a strong pitch for regulation of steel and cement prices, saying a continuous drop in fuel prices is not translating into any reduction in their costs.

In real estate, input costs have gone up by more than 30 per cent over the last three years, top developers said, adding that poor housing demand is not allowing them enough room to pass on the increased costs to customers.

The government needs to regulate steel and cement prices just as the power regulators monitor tariff, said the Confederation of Real Estate Developers Association of India (Credai), the apex body of developers.

"In spite of a slowdown in consumption, we saw a sharp rise in cement and steel prices. The domestic construction industry has been jostling with steep and steady rise in prices of cement, steel rods, bricks and other material, which have risen by over 30 per cent over the past three years," said Lalit Kumar Jain, chairman of Credai and CMD of Kumar Urban Development.

Input costs have also increased on account of rising labour cost in the construction industry, Jain said. "Besides, high lending rate has also hit the sector hard."

Realtors say they have been facing strong pressure on margins, as costs of cement, steel and transportation have not gone down.

Margins have been eroded by as much as 75 per cent from their peak levels seen during the real estate boom of 2006-2007. But now they have shrunk due to rising input costs, higher cost of capital and higher approval costs, among others.

From an average of 50 per cent, margins have become wafer thin, said Pankaj Kapoor, chief executive officer of Mumbai-based non-brokerage realty research firm Liases Foras.

"Our input costs have gone up significantly impacting margins, after the government put restrictions on mining of iron ore and coal," Rajeev Talwar, executive director of DLF, told Financial Chronicle.

He said steel and cement companies are trying to pass on their rising input costs as demand has improved. "Margins have come under pressure thanks to subdued demand and stagnant realty prices. In case a project gets delayed, higher inflationary costs further impact margins," Talwar pointed out.

Talwar hopes the scenario will change and demand will revive from the coming year once interest rates of home loans start falling.

Sunil Mantri, chairman of Mantri Realty, said customers are already burdened with higher service tax, stamp duty and registration costs, among others, while interest rates for home loans continue to be high. "All these are discouraging customers from purchasing property even as input costs have gone up," he said.

Mantri said the government should intervene and try to bring down taxes for an early recovery of the sector. Credai's Jain said the outlook has improved, as developers expect the government to execute land, administrative tax and banking reforms without further delay.

He said RBI has been giving a raw deal to realty developers for long despite the industry contributing handsomely to the country's GDP, apart from being labour and capital intensive.

He called for government intervention to facilitate low-cost funding for homebuyers as well as developers.