The recent hike in petrol price has resulted in the increase in transport charges as announced by the transporters, building material prices are set to rise too as the result of the hike in transport charges. The hike in transport charges mean prices of food stuff will also rise. But with the electric tariff hike on 1st July, there will be another round of price hike and as the result of all these factors, ordinary guys on the street will have less money in their pocket to spend. This will mean less demand for real estate and property which mean the developers will find it difficult to pass on the cost to the consumer even though the cost of construction has gone up.
The cost of construction has been widely reported to have risen by about 30%, does it mean that price of house will increase. I would believe so as the increase in material cost has resulted in lower margin for the developer. Except for those who specialise in high end properties where the margin is extremely good, any increase in material cost mean lower profit but for those who work on tight margin, the recent increase in material cost will render the project not viable.
As a result of increase in construction cost, developer will have no choice but to increase the selling price of the properties but how would the sale be affected by the price increase is anyone guess. With the uncertainty in the material cost coupled with less disposal income of general public, it would be difficult for developer to strike a balance maintaining reasonable profit and maintaining the affordability of the property. Many are adopting a wait and see attitude and delaying their new launches.
Viewing the scenario positively, with less new launching ahead, many of the unsold units will be taken up and this is healthy for the overall real estate sector and when this is all done, you can expect the price of property to shoot up.
Jun 6, 2008
Price increase
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