Rising prices of a construction steel item like rebar — both BF and IF grades — has put the real estate construction industry in a fix. Consequently, the sector has gone into a huddle discussing how to proceed with the cost management. In fact, there has been a substantial 25-30% rise in constructions costs because of the increased prices of steel as well as cement and other building materials, over the last six months.
However, as per Anand Singhania, Chairman of the CREDAI’s National Executive Committee, MSME, and MD, Avinash Group, the highest escalation in prices has been in steel.
The Confederation of Real Estate Developers Association of India (CREDAI) has not made any presentation yet but feels approaching the Ministry of Steel on escalated prices of long products is an option.
As per data maintained with SteelMint, blast furnace-grade rebar prices have risen almost 54% over the past one year. Prices of the BF FE-550D have increased from INR 35,300/t in Jul’20, to a record INR 54,550/t in May’21. The IF-grade Fe 550 too has risen 60% from INR 31,000/t levels in Jul’20 to an all-time high of INR 49,550/t in May’21. While Jan’21 saw a 25% increase in cement prices.
“Steel is the biggest cost component in realty construction. In a large multi-storied building, typically, 40-50% of the structure’s cost comprises steel,” says Singhania.
“And that is impacting project costs. We have been discussing this within the industry,” Singhania informed, adding, “Sending a representation to the steel ministry with regard to rising steel prices could be an option”.
He also said that realty developers are aware of rising input material costs of steelmakers which would make it unviable for them to have longer term contracts of say three months.
Contracts must factor in cost escalation
CREDAI also wants the cost escalations to be factored into real estate contracts.
As per the Real Estate Regulatory Authority (RERA) norms, there is no clause where developers can add a project’s price escalation into the contract since these are fixed priced ones at present. “We want the cost escalation to be factored into real estate contracts,” Singhania said. The clause should be such that if there is a cost overrun by say 7% within the tenure of 3-4 years then this can be absorbed by the developer. But, if there is an increase in costs beyond this, then this should be factored into the contracts.
“We are mulling an amendment to the RERA clause regarding the increase in prices of input materials,” Singhania informed.
What needs to be done?
The government has to intervene so that all parties have clarity on prices, insists Singhania. In construction, the average time period for a project delivery is 3-4 years. “For mills to retain the same price for a year is difficult. So, all the stakeholders need to come together to resolve the issue, including the steel ministry,” said another source.
Madhumita Mookerji
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