property prices

Reasons Why Property Prices are Expected to Go up Sharply Very Soon

It has been quite some time.

And they were missing it.

They were missing the company of Moonmoon’s father, his wise utterances, and her mother’s warm, affectionate hospitality.

And of course, Moonmoon’s mother has been missing her daughter and son-in-law especially because she gets an excuse to try her best recipes when they visit her.

Therefore, the inevitable happened.

Phones became busy.

Plans were made.

Moonmoon and Raj would visit Moonmoon’s parent’s home next Sunday.

That settled, Moonmoon’s mother started planning for the morning breakfast and lunch menu.

The War is Disrupting Economies

Soon enough, Raj, Moonmoon, and her father sat down for the essential adda. They discussed the superhit movie taking the country by storm, politics, and finally settled on the war and its effects.

The Russia-Ukraine war is disrupting economies. Unlike in the past, this war is having a massive negative effect on economies because of various factors, especially because almost all economies are very fragile in the aftermath of the Covid pandemic.

Russia is a major producer of crude oil and gas and is a major supplier to Europe. Without Russian oil and gas, the European economies are experiencing enhanced energy prices.

This is already increasing inflation in those countries.

Moreover, international oil and gas prices have gone up fast after the beginning of the war. This is especially hurting the Indian economy as India is heavily dependent on crude oil and LNG imports with 82.8% import dependence on crude oil and 45.3% on natural gas/LNG.

The government had to raise fuel prices to meet higher import costs and there is a real danger of inflation going up further.

Raj asked his father-in-law about his views on what the future holds.

Will the prices of everything go through the roof?

Moonmoon’s father took a pause.

Then, after careful consideration, he started to lead the discussion.

“It is definitely worrying,” he said.

Raw Material Prices are Shooting up

As soon as the world opened up after the pandemic, a wave of demand coupled with a supply crunch hit the global economy. Raw material prices started to increase and this, in turn, ensured that the prices of finished products also began to rise.

Almost every economy is experiencing unprecedented inflation currently.

Another factor influencing the raw material price hike is widespread shortages. For example, cement manufacturers are facing serious coal shortages.

Demand is Rising, Supply is Not

As the economy is coming back to normalcy, demand for all goods and services is rising fast, much faster than the supplies can catch up. For example, demand for cement, a key construction industry raw material, is extremely robust. However, coal shortage and high input costs have forced the manufacturers to hike cement prices.

In the case of steel, another major construction raw material, prices have been steadily rising for the last one year.

The situation has now further worsened because of the Russia-Ukraine war.

The war has created substantial shortages in the European market. Both Russia and Ukraine are major suppliers of steel in Europe, with close to 3-4 million tonnes of steel supplies coming in per month from each of these countries. But supply from these countries is disrupted right now.

Spot prices of steel in Europe are higher by nearly ₹15,000 per tonne ($2,000 per tonne) as compared to Indian prices, making the market more lucrative. On the other hand, there is an impending lockdown in Tangshan in China – known as the steel city. This has led to further volatility in steel prices.

Coking coal, a major input to various industries, is also witnessing higher prices and reduced supplies, especially from Australia.

Raw Material Price Rise in India

This twin effect of robust demand and supply constraints is pushing the raw material prices up in India.

Cement prices have gone up by as much as 10% in March only.

The high price is expected to remain elevated in the future and can worsen further in the face of rising fuel costs.

Steel prices have been rising steadily through the last year and now are rising again. All manufacturers have increased prices by up to Rs 5,000 per tonne after the war started.

The price of cement has risen by 22% and that of steel has jumped up by as much as 30% year on year as of March 2022.

At this time, Moonmoon’s mother entered the room with plates of luchi and alur dum on a massive tray.

Everyone gladly took a pause from the uncomfortable discussion.

It started again after the munchings were complete and a hot cup of tea was in each hand.

Property Prices are Expected to Rise Sharply

In the last year, the cost of construction has increased by 10-12%.

The pinch is especially felt in the affordable and middle-income housing projects. Early-stage and newly launched projects are going to be impacted seriously with major cost escalations.

As wholesale price index and raw material costs are increasing by double-digits, construction costs can see a further uptick of 8-9% by December 2022.

In the above scenario, real estate developers will be compelled to raise property prices as construction materials constitute about 2/3rd of the total cost of construction.

Fund Cost is Likely to Rise

High inflation is compelling central banks to hike interest rates. The US central bank, the Federal Reserve, has already indicated about the rate hike to contain a massive spike in inflation.

It is just a matter of time before other central banks, including RBI, also follow suit if the situation persists.

Increased interest rates will also impact homebuyers as home loan rates will also go up. Besides, this will affect property developers and financing costs will increase for them.

Homebuyers Must Act Fast

Homebuyers must act fast and book their chosen homes so as to sort of lock the current property prices before it goes up substantially.

They must realise there is not much time to avoid crushing budget increases as property prices are hiked any time now.

Rental costs have also increased nationwide and it is better to buy an apartment rather than stay on rent.

In Kolkata, the major section of the real estate market is affordable and for the mid-income group. The impact of the impending price rise will have a considerable effect.

So, the time for waiting to buy your chosen home is all but gone.

The time to act is now.


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