Date:27/05/2008

URL: http://www.thehindu.com/2008/05/27/stories/2008052758330300.htm

Priscilla Jebaraj

In the wake of the rising cost of housing, real estate prices have been grabbing the headlines. However, the materials that hold your home together are also responsible. From steel, cement and sand to the fuel that transports them and the labour that puts them together, they have all become more costly in the last few months.
The steel price rise can be traced back to the rise in land prices itself, according to Rajiv Rai, chairman of the RKKR Steel group. "Steel manufacture is dependent on raw materials that come from the land - iron ore and coking coal. Globally, these two raw materials have seen a price rise of almost 100 per cent in the last 12 months," he says.
Construction grade steel prices are now hovering between Rs. 45,000 and 47,000 a tonne. Cement prices have softened recently under government pressure but are on the rise again, and now cost Rs. 250 for a 50-kg bag. Sand prices have soared from Rs. 1,000 a lorry load a year ago, to Rs. 6,000 now.
Even at this rate, there is an extreme shortage of sand in the market. The construction industry has cut down its inessential raw material purchases in an attempt to ride out the storm of rising prices. "Builders hope that when prices reach their peak, they will obviously have to come down," says J.R. Sethuramalingam, state chairman of the Builders Association of India.
However, Mr. Rai warns that such hopes are illusory. "The government created uncertainty in the market by saying that prices will come down. After a reduction in prices for three weeks, prices have gone up again last week." He blames last week's hike on the government failing to keep its word and slapping export duties on steel.
Each side blames the other for taking undue advantage of the situation. "The rise in raw material prices - steel, cement, diesel - is contributing to a rise of Rs. 200 a sq ft in housing prices. Steel alone is responsible for an increase of Rs. 70 per sq ft," says Mr. Sethuramalingam. He also accuses manufacturers of cement and steel of profiteering. "Why should they charge such exorbitant rates just because there is demand?" he asks.
It is consumers who are caught in the middle of the battle. People who have already paid for their flats are being hit by the problems of the construction industry, as work is getting delayed. "Builders are not able to finish projects at the price quoted. There are a lot of cost over-runs," says Mr. Sethuramalingam.
Those who have not yet booked their flats will wait till prices fall, or be forced to go even farther away from the city, into suburbs 25 to 30 km away.
People building their own homes could be the worst hit. While the cost of constructing a basic shell has risen from Rs. 600 to Rs. 800 per sq ft over the last year, a home with the interiors done up costs Rs. 1,400 per sq ft to build, as opposed to Rs. 900 a year ago.
City architect John Rajan says that many clients are in a bind. "People got their home loans for a certain amount a year ago, according to a fixed budget, and started construction," he says. But, raw material costs have pushed budgets up by 20 per cent, leaving them searching for money to complete their homes.
Still, Mr. Rai advises potential home-owners and buyers to make their move now, despite the soaring prices. "Let's be realistic. The inflation rate is now almost eight per cent. The longer he waits, while the prices of one or two items may come down, all the others will go up, and he'll be worse off than before," he says.
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