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Softening prices raise spirits
Source : The Hindu Property Plus Published On : 2009-01-10 City : Thiruvandrum

         The prices of some key building materials have started falling, but how far will it ease construction costs overall? K.A. MARTIN takes a look.

The building industry, reeling under an economic slowdown, has been looking at two major sources of solace. The first is the relief measures announced by the Union government, including tax cuts on materials and interest rate revisions.

The second is the fall in prices of several building industry inputs. More than the government incentives, a natural correction in the materials market is what is expected to provide long-term price stability for the building industry.

Has the falling price of several key inputs helped the building industry is what the customers are looking to as the industry admits to around a 35 per cent fall in sales.

While relief measures from the government have been quick in coming, effect of sops such as sales tax cut is yet to be tangible in the market, though builders admit that there is a certain amount of easing of prices.

Antoney Kunnel, secretary of Kerala Builders’ Forum, says that the price correction in the building industry input market has not been substantial, ranging between just two and three per cent overall.

Put together, the recent fall in the price of some of the construction materials contribute just about Rs.70 a square foot. This benefit has been passed on to the customers, Mr. Kunnel says.

Land price, perhaps, the single-most important element in calculating the price of an independent house or an apartment in a multi-storey complex, has not shown any sign of easing.

Sales have stagnated. But there is no serious fall in land prices. Even if the land prices fall, this will be reflected only in future projects, says George E. George, chairman of the forum.

The prices of steel and cement were the first to undergo correction. But cement prices went down between Rs.4 and Rs.7 a 50-kg bag. That is about two per cent change, says Mr. Kunnel, pointing to the rate of price rise over the last one year.

The early part of 2008 saw an unprecedented boom in the building industry. The market was flush with money and building industry material costs went up substantially.

What market observers point out is that cement price came down thanks to a tax cut and not because of the general deceleration in the building industry triggered by the global financial recession.

It is true that the more organized of the building industry players have decided to hold projects for a while. This has resulted in a general perception that building industry has come to a halt.

Individual builders and those smaller players with money to tide over the current crunch are active in the market, says a cement dealer in Kochi. He does not foresee any substantial change in cement prices now.

Big cement-makers in the country cut prices early this week with the Union government announcing a four per cent relief in Convert.

The tax relief might, however, not be passed on fully to the customers as cement companies have claimed that the effect of the tax cut has been neutralized by a freight rate hike by the Railways.

Coromendal Cement from ICL costs Rs.275 a 50-kg paper bag. The cement in plastic bag costs Rs.270. Dalmia Cement costs Rs.273 a paper bag and Rs.268 a plastic bag. Zuari Cement costs Rs.275 a paper bag and Rs.270 a plastic bag, says a dealer.

On the steel front, there is some scope for optimism. The foremost reason is that steel prices have fallen not because of the sops or relief measures offered by the government but because of the global situation.

Forecasts                                                                                   

According to industry forecasts, long-term prices are going to ease in the domestic market.

In fact, a senior Union government functionary has been quoted as forecasting a decline in steel prices by the end of June.

The expected fall is Rs.3, 000 a tonnes because of the easing of long-term fuel prices.

Over the last three months, steel prices have recorded the steepest fall among the building industry inputs.

The prices of big brands, such as Vizag and Tata, have dropped along with those of locally manufactured TMT bars.

Vizag 8 mm sells at Rs.34 a kg while Tata sells at Rs.38.60, says a dealer. The prices have varied from Rs.53 a kg three months ago to Rs.34 now in case of Vizag and for Tata, the price variation has been between Rs.49.60 and Rs.38.60, the dealer says.

If steel prices hold some hope, the cost of other inputs such as bricks, sand (both river and manufactured sand) and labour do not show any sign of easing in the near future.

Burnt clay bricks cost upward of Rs.5.50 apiece, while sand prices are hovering around Rs. 45 a cubic feet. Though sand price was expected to ease with the lifting of the monsoon-time ban, it has not happened. The prices came down from the peak of about Rs.55 by about Rs.10. The price of manufactured sand, now freely available thanks to the good weather conditions has also moved in tandem with the sand mined from rivers.

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