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Won't halt construction but high raw material prices a concern for industry: Brigade Enterprises

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Won't halt construction but high raw material prices a concern for industry: Brigade Enterprises

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As raw materials continue their upward surge, The Confederation of Real Estate Developers' Associations of India (CREDAI) has said that key realtors in Maharashtra are considering halting construction activities. To discuss this in detail, CNBC-TV18 spoke to Pavitra Shankar, ED, Brigade Enterprises & Aditya Desai, ED, PDS India JLL.

Real estate sector has been on a tear on the back of booming demand and sales. But as raw material prices continue their upward surge, The Confederation of Real Estate Developers' Associations of India (CREDAI) has said that key realtors in Maharashtra are considering halting construction activities. To discuss this in detail, CNBC-TV18 spoke to Pavitra Shankar, ED, Brigade Enterprises, and Aditya Desai, ED, PDS India JLL.

Shankar affirmed that steel prices have doubled in the last year. Prices of cement and other raw materials like copper have gone up as well which have been making things difficult for realtors, she shared. Shankar said that the company has no plans to halt its construction but stressed that high raw material prices are a concern for the entire industry. Going ahead, the company is looking at price hikes in the near future, she mentioned.
"The situation today is quite stark. When you see the rise in input costs for construction, steel, for example, just 12 to 18 months ago was around Rs 38,000-40,000 a tonne. Today that is the value of scrap and the final product is actually at Rs 80,000-82,000 a tonne. So considering that we use steel in almost every aspect of construction, it is part of all of our equipment like transformers and so on- this certainly has a big impact," she mentioned.
"Even on the price of cement, raw materials like copper, aluminum, petroleum itself, which has an impact on other goods like tiles and paint - all of these have quite a large cost push effect for us," she said.
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"I don't know that we are in a position to stop construction; I don't think that would be something that we would consider here at Brigade but it is certainly a challenge for the industry at large," she added.
"Going forward, we are actually looking at doing a price increase because I think on the customer side, there is the ability to absorb a price increase," she said.
Shankar added that taxation on real estate is very steep in the country. She highlighted that real estate sector has not received the benefit of input tax credit in the last 3 years.
"For the past three years, everybody in the industry has not got the benefit of input tax credit, which was straightaway an 18 percent cost on construction that we have just had to bear and take on as part of the project cost itself. I would say in general, the taxation environment on real estate is quite high," she said.
Desai of JLL, also concurred with Shankar about the high raw material prices. He mentioned that raw material prices account for 60 percent of the total construction cost. Elaborating further, he shared that there has been a cost overrun on projects.
"If you really see the overall project development and the project costs, materials almost account close to 60 percent of the total construction cost and we have been seeing this material increase randomly. Now, this is beyond the contingency inflation anticipated during the planning stage," he said.
"And hence, what CREDAI has put forward is something which is true that there has been a cost overrun on most of the projects. The projects have been delayed in last two years due to COVID-19 and the current geopolitical scenario is also impacting around this," he added.
Watch the video for the full interview.
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