Realty vs reality

M. Soundariya Preetha

Coimbatore, which saw much happening on the real estate front in the recent years, seems to be feeling the pinch of the rise in prices of construction materials, interest rates and labour.

While projects already started continue to progress, it is the smaller ventures that seem to have felt the initial impact.

According to G. Srinivasan, chairman of the Coimbatore centre of the Builders’ Association of India, steel prices have shot up by nearly 65 per cent during the last six months. Cement prices have gone up by Rs. 10 a bag recently and labour costs are up by 15 per cent since January this year.

These factors have resulted in the construction costs going up by nearly 15 per cent across all segments – domestic, commercial and industrial. He explains that the basic materials in any structure are cement, steel and the aggregates. And, the rates of all these have shot up. The impact of the recent hike of petrol and diesel prices is yet to reflect on some materials. And, when that happens, the costs of aggregates can go up by another 2 per cent to 3 per cent, he says.

Most of the cement plant projects in progress in the country now are likely to be commissioned by September or October and that will ease the demand pressure. “Steel continues to be a problem,” he says. “Unless the international crude prices decline, the prices of the rest of the commodities may not see a downtrend,” he feels.

Another area of concern on the construction front is the high cost and shortage of skilled workforce and employees.

The shortage is nearly 15 per cent now. Skilled Indian construction workers, especially those such as carpenters and bar benders, are in high demand in the U.S. and West Asia. In the U.S. a lot of them are employed in the reconstruction work of structures damaged by natural calamities. They are paid hourly wages. Thus, there is a high demand for skilled labour here and this affects productivity too. Similar, is the demand for engineers and supervisors, he says.

Further, “Land prices does not seem to come down here though it has not seen much increase in the last two or three months. In some pockets, it continues to rule high and there is no indication of a decline in Coimbatore,” he says. The city still has a demand for residential units, which is expected to go up in the coming years.

Though the rents are on the increase, they are not proportionate to the other costs. Earlier, owners used to get 4 per cent to 5 per cent returns after all costs. Now, in most of the cases they hardly get 3 per cent, he says.

A leading promoter here points out that the situation is volatile and seems to be heading for a crisis. With the current trend in prices, there will be a slowdown. Further, rise in price of items not yet reflected in the market, he adds.

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