Real estate prices to go up over 10%

REALTY CHECK

The real estate prices in state are expected to see a 10 to 15 per cent rise following the hike in freight charges announced by the Railways. The freight hike will hike the prices of steel and cement prices and will affect the real estate development in the state.

The housing sector in the state has already been suffering due to the recent increase in home loan rates.

"The increase in home loan rates announced by several banks has already affected the housing sector. The industry is not prepared to take additional burden of increase in cement and steel prices, which are the major raw material used by the housing industry," Harshad Patel, president, The Gujarat Institute of Housing and Estate Developers told Business Standard on Friday.

"This increase will affect the real estate across the country and this rise in price will escalate costs making it unaffordable and a distant dream for a common man to own a house. The government should consider the issue and should ensure that steel and cement are not hiked," he added.

The expected increase in the steel and cement prices will derail the construction industry completely as they are an important element of any construction activity and form 33 per cent of the total cost.

With the hike in freight charges announced by the Railways, market indications suggest that the price is likely to increase up to 100 per cent from the original levels within a time-span of one year.

The construction industry provides employment to over 3.2 crore of people, with the industry contributing 5.1 per cent in the gross domestic product (GDP) growth and is the largest employer after agriculture. The total turnover of the industry is estimated at over Rs 2,47,000 crore.

This rise in steel and cement prices will drastically impact over 250 industries and may lead to sudden halt in the construction industry including work relating to water pipeline, highway works, and bridges amongst others.

"With the increase in prices of cement and steel due to the hike in freight charges announced by the Railways, it is clear that there is no security for the contractors, builders and consumers. Today when a tender is filed, at the most the builder takes into account price rise of last one year, but how does one take into account such unforeseen price rise which constitute to over 33 per cent of the construction cost. If this price increase continues, it will get reflected in the increase of approx. 10 per cent to 15 per cent in the cost of flats, which would lead to disputes between consumers and builders. Consumers will be affected with these rises as they have to bear the brunt of such unjustifying situations," said, Arun Chaturvedi, president, Federation of Real Estate Developers of Gujarat (FREDAG).

The real estate development sector encompassing the housing and construction activity has a substantial potential to kick-start the economy on account of the significant backward and forward linkages with crucial and critical sectors of the economy including over 280 associated industries.

It is therefore imperative that the government urgently address the concerns of the construction industry and ensure that the cement and steel prices are rolled back.