Increasing cement prices push up cost of construction

Mansi Kapur / TNN / Feb 27, 2007, 00:56 IST

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Building a house costs 20% more than it did before the last budget.

Increasing cement prices push up cost of construction

MUMBAI: Inflation has caught up with your dream house. In addition to rising land prices, construction costs are going through the roof. Building a house costs 20% more than it did before the last budget. The bad news is that this situation is likely to get worse.
There is a shortage of cement in the country, owing to the rapid rise in demand fuelled from infrastructure and housing growth and no commensurate increase in supply.With almost no fresh capacity in sight, this only means a further increase in cement prices, translating into an increase in construction prices.
And it is not the high-flying executive who just booked a four bedroom apartment in south Mumbai, who'll be affected, but your local grocery vendor, who's been saving up for the last 9 years to buy a humble place of his own.
"Since construction costs form a major part of the total costs in low-cost housing, it is this segment which is impacted the most when construction costs rise," Niranjan Hiranandani, MD, Hiranandani Constructions said. Low-cost housing comprises about 70-75% of construction activity in the country, he added.

The increase can largely be attributed to surging cement and sand prices. With the demand-supply gap in the cement industry vanishing steadily during the last few months, cement prices have reached new peaks.
"No one anticipated such a growth in demand for housing and infrastructure a couple of years back, when there was actually a glut in the cement industry. With most new capacities expected to come on stream only by 2008-09, the situation is set for an imbalance," a leading real estate developer said.

Like many other, he too is considering importing cement to meet the gap, as domestic prices have risen close to global benchmarks. But this will not counter inflationary measures. "The only way to counter rising input costs is to increase supply," according to Hiranandani.
"Cement consumption has grown around 10% since April 2006, and with demand outstripping supply, cement prices are only headed up. This trend will continue till the monsoon, when construction activity slows down," a city cement dealer said. Add to that a shortage in major markets across the country, which has been fuelled by lack of availability of transport.
Prices in Mumbai are amongst the highest in the country at Rs 225-240 per bag of cement. Cement prices have risen nearly 20% in the last one year Cement manufacturers are not complaining. Leading players like UltraTech Cement, Gujarat Ambuja, ACC and Grasim have reported multifold increases in their bottomlines in the last three months.
"Apart from a robust growth in their financials, cement stocks have performed very well on the bourses in last few months. This is a reflection of better price realisation," an analyst tracking the sector said. Average capacity utilisation for the industry has risen from 88% to 92% during the three quarters of 2006-07.

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