Rising cement prices make new homes dearer

Whenever cement industry players indulge in cartelisation, the prices will go up across the country. The cost fixing activities of the cement cartel will have a big impact on the end-user market –Gummi Ram Reddy, National Secretary, Credai, tells Bizz Buzz

Hyderabad: Owing to the inflationary pressures, the cement makers have been increasing the rates gradually over the last one year. The average price of a 50-kg bag already reached to around Rs400 from Rs250-300 from a year-ago period. Again, the cement manufacturing companies have recently enhanced the prices further by Rs10-20 per bag.

Factors such as the rising costs of raw materials, power, transportation, and the increased demand for cement have contributed to the recent price rise. The builders may need to reassess their budgets as every increase of Rs10 in the cement price has an impact of Rs4-5 per square feet on construction cost. They need to build this as a factor into their project estimates or sale price.

As per the real estate experts, this price hike may have a major impact on the housing market across India. With every hike in the price of cement bags, the cost of construction increases to the property developers who pass on the ultimate financial burden to the new homebuyers, if not immediately, over the next quarter or so. However, they cannot change the cost committed to their existing customers.

“Input costs are directly proportional to the selling prices. Builders don’t do business for losses. They had already faced financial hardships due to rise in construction costs during the Covid-times, but they couldn’t change their sale price fixed in the pre-pandemic period,” Confederation of Real Estate Developers’ Associations of India (Credai) National Secretary Gummi Ram Reddy told Bizz Buzz.

He is also the Chairman and Managing Director of the Hyderabad-based Ark Group. He said, “Telangana has the highest number of cement manufacturers in India. Whenever cement industry players indulge in cartelisation, the prices will go up across the country. The cost fixing activities of the cement cartel will have a big impact on the end-user market.”

G Hari Babu, National President of Naredco, said: “The sudden surge in cement prices not only puts pressure on existing projects but also impacts upcoming developments. As construction costs continue to rise, developers are grappling with increasing pressure.”

“Rising cost dynamics directly hamper housing affordability, posing a major hurdle to the ‘Housing for All’, the ambitious vision of the Central government. This unprecedented surge has come just when the real estate domain was on its way to recovery from the post-pandemic turmoil. Immediate intervention is necessary to stabilise cement prices, promote an environment conducive to the continued growth and prosperity of the industry,” he added.

According to the latest report by Crisil Market Intelligence and Analytics (MI&A), Indian cement sector will add 150-160 million tonne per annum (MTPA) capacity in the five years starting this fiscal, through both organic and inorganic routes, with an eye on anticipated demand growth in infrastructure and housing and in a bid to capture market share in a highly fragmented and competitive industry.

“In the last five fiscal years, the industry added a capacity of 119 MTPA to reach a total of 595 MTPA. As much as 70-75 MT of the capacity addition is expected to be commissioned next fiscal, with 50-55 per cent concentrated in the eastern and central regions. Large players will account for 50-55 per cent of the planned capacity addition,” the report said.

“The demand is projected to grow 10-12 per cent this fiscal, driven by government push to affordable housing and pre-election spending on infrastructure. That said, incremental supply and heightened competition will limit price growth to 0-1 per cent, maintain prices at Rs390-395 per 50 kg bag, and keep utilisation at 70-75 per cent.”

Next fiscal, Crisil MI&A expects the demand to grow a moderate 4-6 per cent on a high base of the previous three fiscal years. Also, rising raw material cost and a flat base will lead to an uptick of 1-3 per cent in prices to Rs400-405 per 50 kg bag.

Jatin Shah, CTO, Project Management & MD, Technical Advisory Services, Colliers India, said that the cement price hike will not only affect retail consumers, but also the large-scale construction projects and infrastructure projects.