Cement prices add to realty overheating

Cement prices add to realty overheating
Published: 29 January 2007

NEW DELHI: Speculation and demand & supply gaps are sending real estate prices spiralling upwards. But prices of cement too are adding to the boom. In 2006, cement prices continued their journey through the roof, leading to ever increasing construction costs. The result: a burgeoning real estate industry.

In the past one year, the cost of construction has increased by 10-12% as the average cement prices in north India is close to Rs 210 per bag, which grew by about Rs 25 per bag in one year. Says Vikaas Ahluwalia, director of Ahluwalia Contracts, “In the past two years, cement prices across the country have gone up to unprecedented levels. This has already started to show an impact on the construction sector. Construction costs have gone up by 30-35%.”

Industry sources claim that the rise in cement prices have been inevitable and attributable to input costs. “Input costs have gone up at about four times the rate at which cement prices have increased. Cost of coal has more than doubled. Recently Railways have levied an additional surcharge on the sector,” says Manoj Gaur, president, Cement Manufacturers Association (CMA) and executive chairman, Jaypee Cement.

According to sources in CMA, the court order against overloading of trucks have affected movement of cement. Trucks, which earlier used to carry 14 tonnes in one trip, can now carry only nine tonnes, causing a supply shortage.

The rising prices of cement have hit the end consumers pocket the most by way of leading to increased costs of real estate. Says Rumneek Bawa, president & CEO (infrastructure & real estate), Zoom Developers, “Developers have no option but to pass on input costs to the end consumer. Cement is one of the most critical inputs in not just real estate, but every aspect of the construction business.”

Typically, housing construction requires 40 to 45 bags of cement per 100 sq ft, which translates into Rs 70 sq ft for the cement. The construction industry provides employment to over 3.2 crore of people, with the industry contributing 5.1% to the GDP growth and is the largest employer after agriculture. The total turnover of the industry is Rs 2,47,000 cr. Potentially, the rise in cement prices has a drastic impact on over 250 industries.