Ukraine crisis driving up construction cost, home prices

Bengaluru: Your dream home is likely to burn a bigger hole in your pocket with the real estate industry suffering blow after blow. First demonetisation left it reeling, then came numbing blow from Covid-19 and now the Ukraine crisis. The latest shocker –war in Ukraine - strongly suggests that prices will be revised upwards in Bengaluru from the new financial year kicking in on April 1.

The cost of construction has, on average, risen by between Rs 400 and Rs 600 per sqft, especially after Russia invaded Ukraine about three weeks ago, pushing up the prices of most material required for building homes. The president of Bengaluru chapter of Credai (Confederation of Real Estate Developers of India), Bhaskar Nagendrappa said that it was increasingly difficult and unviable to keep the projects going on at the rate agreed upon 2-3 years ago because of the constant flux in geopolitics and unending worries revolving around Covid, which has already had three waves.

Prices of fully constructed residential dwellings are expected to go up between 10% and 15% from the coming financial year, according to Bhaskar. There has been a record rise in the prices of cement, steel, PVC pies, copper and other construction material. Aluminium, too, has become costlier. Thanks to the war in Ukraine, the cost of crude oil and gases has gone up globally. Fuel price hike, currently on hold, will negatively impact the sector once it's revised, Bhaskar said.

Bellwether developers Godrej, Oberoi and DLF have already announced an increase in prices of residential units by up to 10% on the back of strong demand and a substantial increase in raw material prices. For instance, Tata Steel has increased prices by Rs 4,600 per metric tonne and company's president TV Narendran is quoted in media as saying that input costs of making steel have gone up significantly, leaving them with no room but to increase the price.

Bhaskar urged the government to come out with a matrix of solutions so that there's a sense of stability in the price factor for homebuyers, who have been subjected to price assaults one after another for more than five years now. "Usually, a crisis cycle is 2-3 years. We are in the seventh year of a never-ending crisis. First, it was demonetization, which came as a bolt from the blue. Then came GST (Goods and Services Tax), which went through many iterations. With each iteration, the crisis got deeper. Then came the cement, sand and steel suppliers who resorted to cartelization to the extent that the honourable minister of Road Transport and Highways had to resort to a public warning pushing for a halt of "artificial" hike in price of the key construction raw material. Now, the Ukraine war has only exacerbated this artificial hike," he said.