Have you booked a house? Your project may get delayed. Prospective buyers may also have to shell out more in the near future for a new apartment. The second wave of COVID-19 had a huge impact across businesses, real estate is no exception. But apart from the COVID-related disruptions, including a labour shortage, the sector has also been hit with a rise in prices of raw materials like cement and steel. Developers say if this trend continues, price hikes will be inevitable.
Real estate body CREDAI (Confederation of Real Estate Developers Association of India) conducted a pan-India survey, with participation from 4,813 developers. As many as 95 per cent of them felt that project delays were inevitable unless the government and the Reserve Bank of India announced relief measures for the sectors.
Various reasons were attributed for the delays, with 92 per cent of the developers citing labour shortage at construction sites, 83 per cent developers working with less than half the workforce and over 82 per cent of the developers facing delays in project approvals.
“The second wave has not only infected millions of Indians, but has also slowed down the economic recovery, as all businesses, including real estate, came to a sudden halt once again... This calls for a fresh stimulus package apart from other reliefs aimed at boosting the economy,” said Harsh Vardhan Patodia, CREDAI President.
On the one hand, while COVID-19-related disruptions have hit developers, rising raw material prices has impacted project costs. Construction costs have gone up more than 10 per cent for 88 per cent of the developers, and that may necessitate raising prices if the trend continues.
“Costs have gone up. In Mumbai and the Mumbai Metropolitan region, we are facing up to 15 per cent increase in our cost of construction, only because of the increase in cost of raw materials and services. Our margins, planned earlier, are getting so squeezed that beyond a certain point, it will not be possible to squeeze them more,” said Boman Irani, president elect of CREDAI and chairman and managing director of Keystone Realtors.
This comes at a time when most of the developers have seen a drop in customer enquiries, due to the pandemic and lockdowns in various states.
“A major problem that has come in the last couple of months is that work has come to a standstill. There have been no walk-ins, no payments received, so there is going to be tremendous stress on the finances of developers,” said Satish Magar, CREDAI Chairman.
While customer walk-ins have fallen, many are also delaying their purchase decisions, which in turn will hit developers' revenue. According to the survey, as many as 77 per cent of the developers who had availed project finance were facing issues of servicing their existing loans.
Magar, who is also the chairman and managing director of Magarpatta Township Development and Construction Co, therefore, feels the government should step in and allow restructuring and moratorium on loans.
Given the construction delays due to labour shortage and difficulties in getting raw material supplies in time due to the lockdowns, developers have requested the governments to provide a 9-12 month extension in RERA (Real Estate Regulation and Development Act) timelines and permissions.
States like Maharashtra had earlier announced relief in the form of stamp duty waiver till March. Developers say measures like these will help in fueling consumer demand.
