Experts say price of building materials like cement may increase as oil prices go up. There is also a likelihood of interest rates rising.
After Russia launched an all-out invasion of Ukraine by land, air and sea, and the United States and Europe promised to retaliate against Moscow with the toughest sanctions possible, experts warned on Friday, February 25, that the unfolding conflict could spell a potential crisis for the real estate sector.
The impact would be felt in the form of an increase in cost of building materials, including cement, on account of rising crude oil prices and a possible increase in borrowing costs, they said.
Experts said that in the event of a full-blown conflict, the cost of transportation will likely go up, and its effect would cascade through the supply chain. That may push up prices of raw materials further, increasing the cost of construction.
Oil prices have already surged past $100 per barrel, and stock markets have crashed globally. Oil prices have been rising over the last couple of months owing to concerns of disruptions in the global supply chain amid the emerging Ukrainian crisis.
“Eventually, the impact will trickle down into the real estate industry as well. While the industry has been resilient, the rise in prices of raw materials by 20-30% has forced developers to marginally increase the prices of projects. Industry forecasts indicate that prices will rise much more in the coming quarter and given the current crisis, the surge may be manifold,” economists said.
“If the Ukraine crisis deepens, then there may be a negative impact on the overall economy and the real estate sector, which is currently witnessing a growth trajectory.”
“With oil prices crossing the $100 a barrel mark, there may be an impact on the overall economy in terms of cost of manufacturing and supply chain. The price of factor inputs for real estate is likely to go up as a result and real estate developers, who are already operating on thin margins, may not have any option but to push up prices (supply side),” they explained.
The impact will be felt on both demand and supply sides, which will not augur well for the real estate sector, they added.
Source: moneycontrol.com | Author: Vandana Ramnani