Real estate developers and cement producers in the State are yet again sparring over the increase in cement prices. Real estate players have warned that this would lead to an increase in apartment prices, while the cement industry attributes the hike to to an increase in their input cost.
The rise in cement prices has been a politically-sensitive topic, and both parties have been engaged in a war of words over the issue in recent years. Developers have alleged cartelisation by the cement industry, a charge which has been denied by the other side. In turn the cement players have alleged that the developers should bring down their inflated apartment prices first.
The prices of cement, steel and other construction materials have been on the rise. Builders claim the retail cement prices have increased about 13% to up to ₹520 per 50 kg bag, up from ₹460 in May. “When it comes to construction, there are two important ingredients -- one is cement and the other is steel. The prices of both these have gone up in the last two months. Anyone who is doing a project now will have to spend additional money, and because of this, apartment prices are likely to go up,” Suresh Krishn, Tamil Nadu president, The Confederation of Real Estate Developers Association of India (Credai) said.
According to an analyst at research firm Emkay, cement prices in Tamil Nadu have gone up by 3.4% at the compound annual growth rate (CAGR) over the past four years. Prices have increased around 20-22% in FY21 from FY20 and have gone further up by 3-4% in the last 3-4 months.
Padam Dugar, vice chairman and managing director of Dugar Housing Limited and president of Credai - Chennai Chapter pointed out that there is a huge price difference between the cement sold in Tamil Nadu and that in neighbouring states like Andhra Pradesh. “A ₹50 increase in cement price will result in a ₹20 hike in cost per square foot. Taking into account time and other inflationary factors, we need to ensure that the burden of increase in final real estate cost be equally shared by the developers and customers,” Arun Mn, founder and managing director of Casagrand said.
A senior cement industry executive said that input costs have gone up and to that extent there is an increase in price. He pointed out that petroleum coke (petcoke) prices, a key input, have gone up to $130 from $45 per tonne, while diesel prices have gone up to ₹90 per litre from ₹60 thereby resulting in increased freight cost.
Cement prices have been increasing across India as well. Natasha Trikha, analyst, CARE Ratings, pointed out that all-India wholesale and retail prices of cement increased by 4.4% and 3.3% to ₹358 and ₹371 per 50 kg bag respectively on a yearly basis for the month of March 2021. Further, prices averaged ₹370 (wholesale) and ₹378 (retail) per 50 kg bag for the period April-May 2021.
“In the overall prices of a property, there is an interplay of land costs, raw material costs, labour costs, taxes, etc. Among these, land cost has the highest share as compared to various other inputs like labour, materials and other services,” Mani Rangarajan, group COO, Housing.com, Makaan.com and Proptiger.com. said. Hence, the land cost has more influence on apartment prices. But the steep rise in prices of raw materials, especially since March this year, will also have a bearing on the final price of properties, he added.
Prateek Kumar, Research Analyst - Cement & Logistics, Antique Stock Broking Limited said that the price increase in cement does not happen as it does in the case of FMCG companies or paint companies where there is an annual hike in prices. “Here it happens sporadically. Because of this factor the prices sometimes tend to look very high or very low as the demand-supply equation plays out,” he added.
The current spat comes when a new DMK government has come to power. “They (State government) should call the manufacturers and the end-users and discuss the issue,” Mr. Krishn said. The government has to set up a team to understand this market and arrive at a decision,” M. Paneerselvam of Akila India Kattida Tholilalargal Mathiya Sangam said.
Recently, TN Industries Minister Thangam Thennarasu had said that the Chief Minister would be consulted on the issue and prices would be brought down.
TUG OF WAR
What the builders and construction industry say
- Prices of major raw materials cement, steel have gone up
- Wholesale cement prices have increased to ₹460-470 (per 50 kg bag) in June from ₹420-450 in May
- Retail cement prices have increased to ₹460-520 (per 50 kg bag) in June from ₹420-460 in May
- Higher cement prices would lead to increase in final prices of residential properties
- Need State government intervention to control the cement and other raw material prices
What the cement industry says
- The input cost for cement has gone up, resulting in higher prices.
- Power, fuel and freight expenses account for nearly 50-55% of the total expenditure incurred by the cement players.
- Input cost for cement has gone up by ₹180-200/tonne, according to analysts
- Prices of petroleum coke (petcoke), a key input for cement have increased to $130 per tonne from $45 per tonne
- Diesel prices have gone over ₹90 per litre from ₹60, resulting in higher freight cost