Real estate projects to feel the pinch as steel, cement prices rise

Road transport & highways ministry charges a 10x toll rate for major bridges, structures

An increase in prices of raw materials — steel and cement — could cast a shade on the construction cost of highways as well as real estate projects.

 

“In the case of roads, a majority are being made on bitumen. Therefore, there won’t be an impact on costs but as far as bridges are concerned there will be a huge impact because they are built on cement and steel,” said an official at the National Highways Authority of India. However, the official did not provide the estimate of cost escalation and said it would differ from one case to another.

 

The Ministry of Road Transport and Highways charges a 10x toll rate for major bridges and structures under its tolling policy.

 

According to estimates, the current cost of road construction per km for Bharatmala is Rs 15-20 crore. This suggests an average cost of Rs 150-200 crore a km. However, some experts say the structure costs vary widely, depending on design choices. Bridges could be cable ones or vary, depending on terrain like those in the Himalayas, where costs are very high. “Infrastructure and road projects would be at various periods of construction and hence for a project which is in its early stage of construction the impact would be higher and this would be in the range of 10-15 per cent,” said Jagannarayan Padmanabhan, director and practice leader (transport & logistics), CRISIL Infrastructure Advisory.

 

Not just road projects, real estate projects are staring at cost escalation. “Construction costs have gone up 4-5 per cent due to rise in steel and cement prices,” said Niranjan Hirana­ndani, managing director, Hiranandani Comm­unities.

 

Some realty companies, however, say the impact would not be much. “Since their selling price is Rs 15,000 to Rs 18,000 per square feet, an increase of Rs 100 to Rs 150 due to increase in steel and cement is not an issue for them,” said Kamal Khetan, chairman, Sunteck Realty.

 

The price of steel is estimated to have gone up to Rs 65,600 per tonne from Rs 35,000 last year while the cement price has increased to Rs 420 a bag from Rs 280.

 

According to an India Ratings report, domestic hot rolled coil (HRC) prices in Mumbai of 2.5-8mm grade increased by 17 per cent month-on-month and 66 per cent year-on-year in mid-April 2021 to Rs 63,400 a tonne. Domestic flat steel prices have increased due to bullish trends in the global HRC market and strong end-use demand. High export realisations and a low risk of imports over the near term are likely to keep prices high.  However, prices could face temporary headwinds due to the second wave of the pandemic. Similarly, domestic rebar prices were at Rs 53,000 in mid-April 2021, Rs 3,500 higher month-on-month.

 

International rebar prices have increased substantially with Chinese rebar prices at $890 in mid-April 2021, $145 month-on-month higher. Construction firms are supposedly alleging that cement firms have formed a cartel and have been hiking prices. They are blaming the government for not protecting the interests of the industry and public.