08 JULY, 2022

The global supply chain disruptions due to geopolitical issues have led to prices of raw materials surging in several industries, including real estate. Materials such as cement and steel that are central to construction saw a price hike by over 20% annually in March 2022. The raw material costs have only continued to increase as global volatility keeps escalating. If you are wondering whether this increase in raw materials cost will increase property prices, let’s first take a look at what exactly is happening:

  • Cement prices

In March 2022, cement prices rose by 11% on a year-on-year basis, reaching Rs 395 per 50 kg. Rising cement prices have a significant adverse impact on the real estate market because it’s one of the most important construction raw materials. In April, the all-India average price of cement reached a record-high month-on-month increase of 8.1% at Rs. 25-30 per kilo. Rising demand for cement along with the rising costs of input materials such as coal and crude prices are only further pushing cement prices up.

  • Steel prices

Steel prices too have been increasing since earlier this year. An increase in the cost of iron ores, coking coal, and crude led major steel producers to hike prices. The price of a ton of Hot Rolled Coil (HRC) steel reached between Rs 76,000 and Rs 79,000 in April and continues to remain high. As per industry experts, this upward trend in steel prices will continue for at least another two to three months and will continue to pose problems for developers.

Impact on property prices

Since the real estate market had finally begun recovering from the COVID-19 pandemic, developers did not want to put the burden of increased raw material costs on the buyers. For the most part, until now developers were taking the hit of rising raw material costs. Now, however, as the prices continue to further increase, they are finding it hard to accommodate them. Already, certain major developers have increased their property prices across portfolios by 10% while some others are considering a 5% increase. So, yes, raw material costs are surging and will most likely continue to increase property charges in the country. Given the Russia-Ukraine situation, a global energy crisis like never before is looming and how things pan out primarily depend on whether the situation deescalates or further escalates.

This is why it is important for you to undertake some financial planning before you apply for a home loan now. To get started, you should use a home loan EMI calculator to get an estimate of your Equated Monthly Instalment (EMI) will be. This will give you an idea of what your homebuying budget should look like and how you can plan your finances around it accordingly. Applying for a home loan is a long-term financial commitment as the loan tenures tend to run into decades. Thus, having a solid repayment plan in place before you apply for a loan is crucial, especially given the current macroeconomic scenario.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.