Rising raw material prices hit developers' margins

With the cost of basic raw materials like cement and steel going up in the past few months by over 60%- 80%, the cost of construction for developers have increased by over 50% - 60% of the budgeted costs. This rise in raw materials is hurting the operating margins of the real estate developers.

The cost of cement has risen from Rs 150 per bag in 2006 to Rs 250 per bag now whereas the cost of steel has risen from Rs 22-28 per kg to Rs 45 - 50 per kg now. This is a steep increase of almost 80%. In the case of steel, the past three to four months have been especially bad. From around Rs 35 per kg in March, steel prices have risen to around Rs 47 per kg in July.

In 2001, the cost of construction was Rs 500 per square feet which has risen to over Rs 1,200 per square feet, largely attributed to the rise in the prices of raw materials. Clients are now asking developers to provide low cost solutions.

However, with the price of steel set to increase even further as indicated by the Union Minster of steel Ram Vilas Paswan and steel manufacturers like TISCO and SAIL, building that dream home is only set to get more expensive.