Effect of current price hike in real estate sector due to rising inflation

Effect of current price hike in real estate sector due to rising inflation

In the real estate industry, the prices have increased 5-8 per cent due to a rise in the cost of construction, and rates are expected to rise further by 5-7 per cent, taking the total increase to 10-15 percent across the Indian real estate market. Ketan Sengupta, CEO of Bengal Peerless Housing Development Company answers vaious queries on price hike on real estate industry in current scenario.

Price hike in real estate based on current scenario

Real estate prices have increased 5-8 percent due to a rise in the cost of construction, and rates are expected to rise further by 5-7 per cent, taking the total increase to 10-15 percent across the Indian real estate market. There has been a steady increase in the prices of construction raw materials in the last two years. The prices further went up due to the Ukraine-Russia war. The oil prices in the international markets are at an all-time high including the Indian market and this has further added to the escalation of the prices.

Price differences in Tier-2 city compare to Kolkata

Amid businesses in India realizing the advantages of the work-from-home (WFH) concept in the backdrop of the Coronavirus pandemic, there has been a major shift of the workforce towards tier 2 cities in West Bengal as well as in India. In these tier 2 cities, the cost of living is less, the work-life balance is better and housing remains affordable, as compared to mega cities in spite of a huge jump in values in the past one decade, backed by infrastructure development. Though the raw material costs are more or less the same, the cost of construction is low due to lower land value, lesser migrant labour issues & lesser construction curbs due to COVID-19. So developers can fetch for lower offerings and higher profit margin.

Profit rate after Price hike

Price increases are there across offerings like steel, cement, copper and even labour charges and developers will have to pass on the cost increase again on to home buyers to protect margins. Fully-built or ready-to-move homes may not see an immediate price rise, but new constructions will definitely feel the pinch of increased cost. For the last one year amid pandemic situations, developers have been able to absorb the rise in the cost of construction. However, with such increases of raw materials, market uncertainties, disruption in supply chain and record high crude oil cost, prices of new launches across the markets are estimated to be escalated by 10-15% varying on geographies, size and scale of the projects.

Your statement on the current price hike in real estate sector due to inflation

Sharp rise in raw material prices is impacting profit margins with disruption in logistics, timely deliverables, and absorption of hiked cost. If developers have sold inventories at a certain price, they cannot charge an escalation from that customer. This is making it hard for developers to pass on the cost increases. Government's intervention is required to arrest the increase in the cost of building materials, especially steel and cement and the price has to be regulated till the time the supply is restored in the domestic markets and both cement and steel should be put in the lower slabs of the goods and services tax (GST).

Ketan Sengupta, current Chief Executive Officer of Bengal Peerless Housing Development Company was born in Kolkata. Sengupta, has completed his Graduation from Jadavpur University, Kolkata and for further education he joined SDA Bocconi University of Management in Italy and completed his MBA there.

He took the first step in his career by creating his own venture, Eikon Creators Pvt. Ltd.,in 1993. He joined the company as one of the Directors. They Started this company from scratch and made it grow to a position of respectability. Eikon Creators provides facilities like, preparing project program, cost estimates, cash flow statements, business development including identification of new projects, participation in tenders, interaction with clients, consultants, etc.

After serving more than 15 years in Eikon Creators Pvt. Ltd. he worked with Godrej Properties Limited for over 7 years as a Business Head of the Eastern Region of Godrej Properties Ltd. He also led the company as an executive management team of professionals, handling functional verticals involving Sales & Marketing, Business Development, legal due diligence, customer centricity and other verticals.

Since 2015, Sengupta has been working as the CEO of Bengal Peerless Housing Development Company. He created a vision and a long term five-year plan for the organization in 2015. He is responsible for P&L, Monetization of current land banks and creating a leadership pipeline, changing management through implementation of SOPs and cutting edge technologies and future business development of the organization. Recently the company has welcomed Sourav Ganguly, the former Team India captain and current president of BCCI as the Brand Ambassador of their newly launched campaign of Avidipta II real estate project at E M Bypass.

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