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Real estate developers in Maharashtra, NCR consider stopping construction thanks to price rise

Real estate developers in Maharashtra, NCR consider stopping construction thanks to price rise

Real estate developers in Maharashtra, NCR consider stopping construction thanks to price rise
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By Jude Sannith  Mar 23, 2022 5:30:27 PM IST (Updated)

"The skyrocketing costs of construction materials are alarming; I can’t recall a spike in construction costs on the lines of what has occurred in the last two months," said Dhaval Ajmera, Honorary Secretary, CREDAI MCHI.

Developers in the Mumbai Metropolitan Region (MMR) have begun contemplating stoppage of all procurements and construction activity, following the recent spike in prices of construction material. The move comes even as developers in NCR have issued a release stating they would stop purchases, amid considerations to stop construction work.

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Recently, members of CREDAI Maharashtra and CREDAI Pune Metro had written to Mumbai's finance minister Ajit Pawar and revenue minister Balasaheb Thorat, on the issues plaguing procurements and construction.
"The skyrocketing costs of construction materials are alarming; I can’t recall a spike in construction costs on the lines of what has occurred in the last two months," said Dhaval Ajmera, Honorary Secretary, CREDAI MCHI.
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"Developers in MMR are particularly worried since most projects are in the price range of Rs 8,000 to Rs 10,000, and a spike of Rs 500 in construction costs alone would wipe out our margins to the point where we might have to pay from our own pockets, to keep construction activity afloat," he added.
Steel priced at Rs 91,000 per tonne, cement at Rs 375 per bag
Global uncertainties surrounding the Russian invasion of Ukraine have led to an unprecedented rise in prices in the last month. Crude prices, coupled with those of steel and cement have seen an unprecedented increase.
According to reports, a tonne of steel which cost Rs 42,000 in January has gone all the way up to Rs 91,000. A bag of cement priced at Rs 120 is nothing short of Rs 375 today.
"The impact is primarily being felt by the mid-segment and affordable segment in Indian real estate since construction cost accounts for a large part of the overall price in these segments," said Dhaval. The body now wants the government to intervene and introduced a series of measures that could mitigate the situation.
"Our suggestion to the government is that if steel prices are so high, halt exports and have manufacturers supply exclusively to the domestic market," he added, "The government could also look to reintroduce the stamp duty waiver that it offered during the peak of COVID-induced economic uncertainty."
Another key measure that developers say will help them keep business afloat is to apply for input tax credits on their payment of 18 percent GST levied on construction activity.
'Amend RERA laws to allow price hikes'
Developers find themselves in a bigger bind because present-day RERA stipulations do not allow them to hike housing prices for customers who have already booked a home. "Instead of looking to increase prices for existing buyers, which will also have legal implications since RERA does not allow us to do that, I believe the time is right to take a practical view of the situation and work towards introducing measures we can control," said Dhaval.
Some developers now want RERA laws to be amended so as to include a force majeure clause that allows them to increase the prices of homes already sold to existing buyers. A release by CREDAI NCR claims that while suppliers of steel are quoting astronomical prices, developers have so far been prevented from doing so on account of RERA limitations.
"Steel suppliers are cancelling contracted supplies citing force majeure and the war in Ukraine," said Pankaj Bajaj, President, CREDAI NCR, "However, while we builders are free to increase prices of unsold inventory, are stuck when we have pre-sold our inventory (on account of RERA). Perhaps the situation should be recognized as force majeure, which would allow us to increase prices for sold inventory too."
The press release warns that should developers continue to have their hands tied when it comes to increasing prices of pre-sold inventory, the market could look at “the next wave of stalled and unviable projects”.
'Maharashtra stamp duty could make matters worse'
As if matters couldn’t get worse, the Maharashtra Government has decided to increase Stamp Duty by 1 percent starting April 1, which real estate observers say could cripple the industry, especially on account of its timing.
"Developers are already working on thin margins because of the sharp rise in raw material costs," said Vikas Chaturvedi, CEO, Xanadu Realty, "The decision to revise stamp duty registrations could now further contribute to the overall rise in real estate prices in key markets like MMR, Pune, Thane and other fast-growing towns in Maharashtra."
Chaturvedi added that a stamp duty hike will hurt bullish consumer sentiment in real estate. “The government would benefit even without the hike in stamp duty as there has been a great buoyancy in the real estate market across the state since 2021,” he said, "Trends suggest that the uptick is likely to continue even in 2022 and beyond."
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