War in West Asia has impacted each sector and real estate cannot be isolated. In an interview to businessline, Shekhar G Patel, President at CREDAI National said that price of new projects could see an increase up to 10 per cent.
Edited excerpts of the interview.
What was the impact on the cost due to the West Asia war, and which were the key contributors?
Post the beginning of the war at the end of February, costs of a lot of raw materials surged. For example, aluminium, which is a basic raw material, saw an increase of nearly 60 per cent, steel prices went up by 25-30 per cent and cement by 25-30 per cent. Overall, the cost of construction — and not the cost of the project — has an impact of 15-25 per cent at various places. Once the war ends, it will take some time to get the benefit of lower crude prices and when the fuel prices come down, it will take 1-2 months to see the impact. So, we expect the cost impact to continue till the end of August, provided the war ends now. If the situation remains normal in August and crude prices come below $80 a barrel and the supply chain continues, then I think the construction cost will start to be a little reasonable.
There is a compulsion in RERA that the units that you have already sold, you cannot increase the price. This means the loss that the developer will have to bear and part of that can be covered by increasing the price of new units. It comes in an increment of 2-5 per cent or 7 per cent.
You mentioned about the cost of construction, what was the impact on the cost of the project?
Every project is unique and so is its cost structure. For example, in an affordable housing project, on an average, shares of land, construction and margin are 30, 50 and 20 per cent respectively. As the construction cost is higher, then the impact there will be more. Now in the case of premium projects, on an average, shares of land, construction and margin are 50, 30 and 20 per cent respectively, so here the impact will be low. Considering all these and if the cost remains during the entire construction cycle, then the impact could be 5-10 per cent. However, if it is just for six months or so, then the impact could be very less or even lower in new projects.
If I understand correctly, the selling price of new projects could go up to 10 per cent, but if the situation improves, then the prices could see an increase of up to 5 per cent in the entire year. What do you have to say about unsold inventory?
In unsold inventory, the cost will not increase because construction is over, there could be some interest cost only for the developers. This means there is an opportunity for them and if there is demand, then they can sell the unsold inventory if they want to sell it at a reasonable rate.
Now we have another big problem regarding the monsoon. What kind of impact do you see?
When we talk about the monsoon, we only talk about the impact on the rural economy. But the impact is also on availability of water which impacts not just the rural economy or agriculture per se, but also the industry, so the impact would be everywhere.
Now, will this have impact on the demand projections?
According to the numbers of NHB, since 2021, the CAGR (Compounded Annual Growth Rate) has been 10-12 per cent in housing. At the same time, the outstanding loan book of housing, which is 11 per cent of GDP, has gone up from 3 per cent earlier. The outstanding loan book for housing is around ₹37 lakh crore. Still, there is scope for improvement in this too because the GDP to mortgage ratio is 22-23 per cent in China, around 20 per cent in other developing nations, while up to 40 per cent in the developed nations. Here people’s income is increasing and the demand for good and better houses is also increasing. The growth rate was around 10 per cent in FY26 and it is likely to be the same this year.
The impact of real estate touches 40-45 per cent of the GDP of the economy overall and its share in overall GDP is 8.4 per cent. In terms of the loan book of a bank, the share of housing is 18-20 per cent (not including developer funding).
