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The way construction input costs are rising, the term affordable in affordable housing might require a revision pretty soon.
A Quick Background
As the pandemic raged through a good part of 2020-21, labour, transportation and logistics hurdles slammed the air brakes on real estate projects across the country.
While the labour is back at project sites, core construction materials like steel, cement, tiles and other fittings are much more expensive today than they were two years back, thanks to the Covid - Ukraine war tag team events.
Per top real estate developers, steel prices have skyrocketed 25% in the last one month, while cement prices are up by 15% in just the last 40-45 days. Also, there seems to be no respite in sight.
Just so you may know, affordable housing projects return a lower margin of 15-20% to the builder, while other housing segments result in margins of 25-35%.
If an affordable housing builder is selling apartments at INR 5,000 per sq. ft., and the construction cost is around INR 2,500, (then there are land, marketing costs and taxes) the margins are around 15-20%. However, when input costs go up from INR 2,500 to INR 3,000 per sq. ft, as the case is today, it becomes difficult to make money, making affordable umm, unviable.
🔽 “Developers who are struggling with wafer thin margins will find it difficult to pass on the price hike to buyers. If prices go up by 20%, buyers would hold their purchases,” feels Prashant Thakur of Anarock.
🔼 “The price rise will definitely impact margins of affordable housing projects. But when prices settle down, this issue will be solved,” is veteran NCR developer Pradeep Aggarwal's 'other side of the coin' view.
Affordable Housing Margins Narrowing
What Next?