Introduction
Buying a house in the major cities of India costs crores. Property prices have gone up like never before. The demand for housing is driving up property prices. The demand for and price of raw materials like cement, bricks, and steel are increasing drastically.
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This is affecting developers and buyers. Property prices in Gachibowli and Kondapur in Hyderabad have seen the highest increases of 33% and 31% in the last three years, respectively. These areas have IT hubs and commercial places. Also, these are near airports and railway stations.
Besides Hyderabad, residential prices have increased in other cities like Bangalore, Mumbai, Delhi-NCR, Chennai, Pune, and Kolkata. According to Property Consultant, average house prices in India’s top 7 markets have increased by 8 percent recently.
Developers are passing on increased prices of construction materials to buyers to keep profit margins high. This leads to a situation called “cost-push inflation,” where supply costs drive up the prices of final products.
Another Challenge for the Construction Industry
Another challenge for the construction industry is the increasing demand for metals such as aluminum, copper, and nickel. These housings are used for wiring, plumbing, and construction materials in residential and commercial buildings. They are also essential for a clean energy transition. That is why the competition for these is increasing all over the world.
For example, copper is well-used for electrical wiring and plumbing. India is heavily dependent on imports, as demand and prices have skyrocketed. Government figures show that the gap between domestic copper supply and demand has widened due to high international prices and limited metal availability.
Rising Interest Rates
The Reserve Bank of India (RBI) controls interest rates in the country to balance the economy. If the RBI sets higher interest rates, borrowers will have to pay more interest. Generally, real estate developers do not take out loans for construction projects. When interest rates rise, so do borrowing costs.
Adding to their financial challenges, especially when interest rates are rising along with raw material prices. Higher interest rates also affect housing demand. This makes it difficult for home buyers to get home loans, which reduces the number of real estate transactions. This has forced developers to lower their property prices or offer discounts.
What is the Future Situation?
The RBI has stopped raising interest rates four times in a row. The RBI is likely to cut rates in its next monetary policy on December 6–8, 2023. This may ease the burden on the real estate sector and boost housing demand. Increasing rates will have a negative impact on the sector with high losses.
Conclusion
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