Rising cement prices to hit affordable housing projects
The Financial Express, April 4, 2009, Page 9
Mona Mehta, Mumbai
The real estate segment, especially affordable housing projects in certain metros, is taking a hit due to repeated rise in cement prices. For, top builders have started witnessing 10% dip in margins and 5-8% hike in construction costs.
Cement prices have increased almost four times since January 2009, by Rs 3-5 per bag each time. Currently, the real estate sector accounts for about 65% of total cement consumption. Experts, meanwhile, believe that cement prices will rise further.
Nayan Shah, chief executive officer, Mayfair Housing Private Ltd, told FE, “Construction costs for our affordable housing projects in Virar and Thane have shot up by 5-7%. Such projects usually allow us builders margins up to 10%. But, now, we feel that we will be left with no margins; that is a worrisome scenario.”
Competitor Kanakia Spaces, meanwhile, is witnessing a dip in sales. Vishal Doshi, the company’s assistant business manager, business development and marketing, said, “The increase in cement prices will surely have a negative effect, not only on builders developing affordable homes, but also overall. Margins in affordable housing projects are anyway very conservative; hence, increases in costs will surely give way to a dip in margins.”
Lalit Kumar Jain, president, Promoters Builders Association of Pune (PBAP) and VP, Credai, said, “It is not only price rise; basic cement price at Rs 265 per 50 kg itself is very high; such prices are not sustainable for affordable housing.”
He argued that 50 kg cement bags should be priced at Rs 125.
“Cartelisation among cement companies is the cause for the high prices; it allows them to raise prices at their own will,” said Jain.
Anand Gupta, general secretary, Builders' Association of India (BAI), too said that cartelisation by cement manufacturers is the root cause for frequent hikes in cement prices. “The hike is creating a lot of uncertainty in deciding construction costs and is leading to unnecessary and multiple disputes between owners and contractors," he said.
Gagan Singh, managing director, project development services, Jones Lang LaSalle Meghraj (JLLM), however, feels that while there have been fluctuations in cement prices, these have had only an insignificant bearing on developers' overall ability to carry on business.
“Judging the market as it stands now, we would rather say that developers' ongoing lack of realism regarding expectations of margins will have a far greater impact on their bottomlines. Their ability to source right-priced land for affordable housing schemes will be of pertinence in this respect. Flux in construction costs is always factored into the project; it is realism in expectations and strategy that will help developers derive real value in a changing world.”
The Financial Express, April 4, 2009, Page 9
Mona Mehta, Mumbai
The real estate segment, especially affordable housing projects in certain metros, is taking a hit due to repeated rise in cement prices. For, top builders have started witnessing 10% dip in margins and 5-8% hike in construction costs.
Cement prices have increased almost four times since January 2009, by Rs 3-5 per bag each time. Currently, the real estate sector accounts for about 65% of total cement consumption. Experts, meanwhile, believe that cement prices will rise further.
Nayan Shah, chief executive officer, Mayfair Housing Private Ltd, told FE, “Construction costs for our affordable housing projects in Virar and Thane have shot up by 5-7%. Such projects usually allow us builders margins up to 10%. But, now, we feel that we will be left with no margins; that is a worrisome scenario.”
Competitor Kanakia Spaces, meanwhile, is witnessing a dip in sales. Vishal Doshi, the company’s assistant business manager, business development and marketing, said, “The increase in cement prices will surely have a negative effect, not only on builders developing affordable homes, but also overall. Margins in affordable housing projects are anyway very conservative; hence, increases in costs will surely give way to a dip in margins.”
Lalit Kumar Jain, president, Promoters Builders Association of Pune (PBAP) and VP, Credai, said, “It is not only price rise; basic cement price at Rs 265 per 50 kg itself is very high; such prices are not sustainable for affordable housing.”
He argued that 50 kg cement bags should be priced at Rs 125.
“Cartelisation among cement companies is the cause for the high prices; it allows them to raise prices at their own will,” said Jain.
Anand Gupta, general secretary, Builders' Association of India (BAI), too said that cartelisation by cement manufacturers is the root cause for frequent hikes in cement prices. “The hike is creating a lot of uncertainty in deciding construction costs and is leading to unnecessary and multiple disputes between owners and contractors," he said.
Gagan Singh, managing director, project development services, Jones Lang LaSalle Meghraj (JLLM), however, feels that while there have been fluctuations in cement prices, these have had only an insignificant bearing on developers' overall ability to carry on business.
“Judging the market as it stands now, we would rather say that developers' ongoing lack of realism regarding expectations of margins will have a far greater impact on their bottomlines. Their ability to source right-priced land for affordable housing schemes will be of pertinence in this respect. Flux in construction costs is always factored into the project; it is realism in expectations and strategy that will help developers derive real value in a changing world.”
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