Kochi: HDFC Realty Ltd, a key player in the financing of the real-estate sector in the country, has recently offered to sell a limited number of apartments in Kakkanad, the most sought after area in Kochi, for Rs 2,300 per square foot.
The offer, which raised eyebrows in the market, is widely seen as a desperate attempt to generate a comfortable level of cash flow as the market is confronted with a host of issues that defy easy solutions.
A major problem facing the construction sector, one of the mainstays of the economy in the state, is the skyrocketing prices of construction materials.
“The average cost of construction has gone up by nearly 40 per cent in the past three months due to the cumulative impact of the hike in the prices of basic materials such as cement, steel, sand and other materials,” T. Padmajan, president, Kerala Builders Association, told DC.
The policy makers in the state have not understood the extent of the problems before this sector, which is responsible for a business turnover of Rs 100,000 crore per year, he said. Lack of control in the pricing of inputs, unscientific tax rates and archaic land utilisation laws are some of the primary reasons for the present problems.
“A study we conducted shows that nearly 217 business segments in the state are dependent on the construction sector. The segments range from steel, cement, paint, and timber to wood, interior design, fabrication and others,” Padmajan said.
Cement prices have gone up by Rs 40-50 per bag in the past three months and we don’t have any control over it, Mr. Padmajan pointed out.
The price of steel is up by 10-15 per cent while that of river sand ranges from Rs 70 to Rs 100 per cubic feet. The price of M-Sand also rose to Rs 85 per cubic feet from the levels of Rs 50-60 cubic feet, he added.
A load of granite weighing 220 cubic feet of 20 mm size is now in the range of Rs 7,000-8,000 from the level of Rs 6,500 three months ago. The increase in freight rates will further add to the spiralling costs. The state should have an entity like the Competition Commission of India so that aggrieved persons can present their grievances before it.
“The Competition Commission had slapped a fine of Rs 8,000 crore on cement companies when the Builders Association of India had filed a complaint before it sometime back. We don’t have such facilities here,” Mr Padmajan said.
“Most people have a misunderstanding that the construction sector is limited to a few builders of multi-storied apartments and commercial complexes,” said Varghese Kannampally, president of Kerala Government Contractors Association.
The cost of projects having a direct bearing on the life of ordinary people, such as public utilities, is hit by the price escalation, he said. The Contractors Association is boycotting fresh tenders due to the delay in getting Rs 1,400 crore in arrears from the government as well as escalation of costs.
Owning a house an unfulfilled dream?
A major fallout of the spiralling cost of construction material is that housing has become unaffordable for even the middle class segment of the population. The state has a demand of 50,000 to 100,000 dwelling units a year, according to a study undertaken by the Kerala Builders Association.
The bulk of the demand is for building in the range of Rs 35 lakh. “Most of our government and private sector employees are eligible for a housing loan to the tune of Rs 15-20 lakhs,” Mr Padmajan said. With most builders declining to take up work below Rs 4,000 per sq ft a majority of the real buyers remain out of the purview of the building industry in the state.
In places like Kochi, an apartment builder needed to charge a minimum of Rs 3,250 per sq ft to break even, said N. Subramanian, director of Oxford Business Solutions and a veteran in the real estate sector with over two decades of experience. “I believe the market needs to reconfigure its priorities, taking into account the needs of different strata of consumers to tide over the present situation,” he said.
In such a scenario the dream of having one's own house will become a distant dream for the average middle class. A survey amongst the residents of apartments in various parts of the state reveals that nearly 60 per cent of occupants are staying on rent as most of them are unable to buy their own houses at the prevailing rates.
The situation is similar to that prevailing in some of the advanced countries where housing is a highly commodified investment instrument and most people are unable to afford it.
