CEMENT PRICES ROCKET, REALTY TAKES BIG HIT

News : 31st Dec 2011:

With interest rates going up, an added increase in prices of realty products due to rise in input costs, especially cement, will affect demand and hit the economy, says A K TIWARY

The cement crisis has badly hit Indian real estate market. The reasons are not far to see - cartelization, cut in supply and a sharp increase in the cement prices.
Due to increase in cement rates, developers are facing problems like delay in project execution and high cost of construction. If this situation continues, it would impact the overall real estate market. It could also lead to delay in delivery of projects and increase in real estate prices. In the current scenario, where interest rates are going up, additional increase in prices due to input cost will affect demand. This is not good for improving the economy, builders and developers say.

The cost of cement has increased by 86% to 87% (from April 2010 to November 2011). As a result, the construction cost has increased by Rs 43 per sq ft in areas like Noida Extension (one of the prime location for affordable range of houses), Noida-Greater Noida Expressway, Dwarka-Gurgaon Expressway, NH-8 and NH-24, among others. The present crisis and steep rise in cement prices are leading to projects getting delayed in these areas.
Navin Raheja, the chairman and managing director of Raheja Group and president of NAREDCO, says: "Cartelization and cutting supply of cement by cement producers is a normal practice, which developers face sometimes. It is mainly an artificial price escalation by manufacturers to earn more profits. Due to increase in cement rates, we are facing problems like delay in project execution and high cost of construction. To meet the cement crisis, suppliers should increase their production. The government should intervene immediately to restore the normal usual supply of cement. The Competition Commission of India (CCI) should probe into the books of cement manufacturers and pass necessary order so that such practices can be controlled." Manoj Rai, the managing director of Gardenia Group, says: "Black marketing is the only cause of cement crisis because if we pay more money then there is no shortage of cement. This clearly indicates it is an artificial crisis all over India. There is ample supply of cement and the government should take action against these people (cement manufacturers). It is delaying our projects and increasing the cost of projects."

R K Arora, the chairman and managing director of Supertech Group, says: "Cement companies have formed a cartel and have raised prices by saying the cost of the raw materials like limestone, iron ore and coal have increased. While cement prices have been going up since August, coal prices have only started rising since mid-October."

"The cost of cement has increased by 86% to 87%. Construction costs for real estate developers have gone up by 15% to 20% (Rs 43 per sq ft) for our running projects Eco Village 1 and Eco Village 2 (Noida Extension). Cement manufacturers have increased the price of cement by Rs 100 per bag in the last three months and are also creating an artificial scarcity of cement in the market, leading to project delays. This will surely have an impact on ongoing housing project costs," Arora says.
Vidur Bharadwaj, the director of 3C, says: "With a sharp fall seen in cement prices after April, they (prices) have started rising in the northern, western and eastern parts of the country while prices in the south continue to remain steady. However, the stated reason for this hike is a slight increase in demand as companies have reduced supplies in the non-trade category to make this hike more impactful. The only solution is that the government must intervene and ensure easing of supplies to the industry. Moreover, NAREDCO's appeal to CCI to look into the current rise in rates of the key construction material should also improve the market scenario."
Rakesh Yadav, the managing director of Antriksh Group, says: "Undoubtedly, cement crisis is a stumbling block to infrastructure investment and real estate market. I believe that the regulation of cement prices, which have not moved since July 2009, is the fundamental reason behind the recent domestic shortages of cement, leading to a temporary cessation of construction activity in the country. Further, its artificial depression could be adding fuel to a seemingly overheating industry and risks a potential hard landing in the future." Prashant Solomon, the joint managing director of Chintels India, said: "The problem apparently lies in the cartelization by the cement industry. This is to create a false impression of lack of supply in the market leading to profit for the cement industry. We are already taking steps to contain this situation. As an industry body, we have approached CCI through CREDAI to explain to them about the cartelization by the cement industry. We were asked to submit proof and I believe that the fact that so many developers are complaining of the shortage of supply and the exorbitant increase in price of cement, is proof in itself. We urge MRTP (Monopolies and Restrictive Trade Practices) to look into this matter and penalize companies who are contributing to this cartelization."

Vikas Gupta, the joint managing director of Earth Infrastructures Ltd, says: "Cement is an integral part of any construction. The prices of cement play an important role in determining the prices of the final units. Any changes or disruption in prices or supply affects the whole of realty sector. It is very unfortunate to see cement prices going up without any substantial increase in input cost of cement industry. Measures should be taken to ensure regular supply and also to control drastic price changes. Any such measure would be very beneficial for real estate sector."

Sanjay Sharma, the chief of corporate communications at Ansal API, says: "Cement prices have shot up by nearly 66% in the last three months and if the same upward trend continues, the cost of construction is bound to increase. This burden of the increase in raw material prices would ultimately raise the total cost of construction and result in increased prices for consumers. The artificial shortage in regular supply of cement may also lead to delay in various ongoing projects."

"We, at Ansal API, consume around 3,000 to 5,000 cement bags a day. The real estate companies are now seriously thinking of alternative sources for uninterrupted supply of cement. It makes commercial sense for the real estate and infrastructure companies having projects near the Pakistan borders to import cement from our neighbour as the cost of a bag is cheaper by Rs 50 to Rs 75 rupees (cost of a bag in Pakistan being around Rs 240 )," Sharma adds.

A report says that the Indian cement industry sustained its growth rate even in the tough conditions of economic slowdown. Cement production is expected to increase above 9% year-on-year during 2010-11 against the previous fiscal year. It is anticipated that the industry players will continue to increase their annual cement output in coming years and the country's cement production will grow rapidly.

At the regional front, southern regions including Andhra Pradesh, Tamil Nadu, and Karnataka were leading the country in terms of cement production in last financial year. Sufficient raw material availability and various incentives provided by the state governments make this region lucrative for investments. Numerous domestic and international cement companies are working hard to establish their production bases in these regions.

Anil Sharma, the chairman and managing director of Amrapali Group and vice-president of CREDAI, who does not believe there is cartelization, says: "Cement crisis is due to fall in production and a sharp increase in the price of raw materials." "Indian Cement Industry Forecast to 2012" provides an extensive research and objective analysis of the cement industry in India. It examines all prominent emerging trends and drivers fuelling growth in the industry.

The report highlights major segments like production, installed capacity, export, import, plant size, and consumption and gives clients valuable information on different aspects of the cement industry. In this way, the report gives a complete and coherent analysis of the Indian cements industry, which will prove decisive for the clients," Anil Sharma says.

QUICK BITES:

‘CEMENT IS AN INTEGRAL PART OF ANY CONSTRUCTION. THE PRICES OF CEMENT PLAY AN IMPORTANT ROLE IN DETERMINING THE PRICES OF THE FINAL UNITS. ANY CHANGES OR DISRUPTION IN PRICES OR SUPPLY AFFECTS THE WHOLE OF REALTY SECTOR’ ‘IT IS VERY UNFORTUNATE TO SEE CEMENT PRICES GOING UP WITHOUT ANY SUBSTANTIAL INCREASE IN INPUT COST OF CEMENT INDUSTRY. MEASURES SHOULD BE TAKEN TO ENSURE REGULAR SUPPLY AND ALSO TO CONTROL DRASTIC PRICE CHANGES. ANY SUCH MEASURE WOULD BE VERY BENEFICIAL FOR REAL ESTATE SECTOR’