Spike in Crude Oil rates may impact Housing Prices in India
The continuing dispute between Russia and Ukraine could have an impact on house prices in India. Due to escalating geopolitical tensions between Russia and Ukraine, real estate developers have expressed concerns about the likelihood of rising input costs.
While the price of critical raw materials such as cement and steel has been rising for several quarters, developers are concerned that the cost increase this time would have to be passed on to consumers.
Housing sales have been recovering in key property markets, owing to pandemic-driven awareness among homebuyers of the need for housing, record-low home loan interest rates, state government stamp duty reductions, and stable prices and incentives.
Most developers, on the other hand, have not raised home prices in order to prioritise liquidity over profitability.
"Since the geopolitical escalation, oil prices have risen and stock markets around the world have plummeted." Oil prices have risen steadily in recent months, owing to concerns about interruptions in the global supply chain as a result of the crisis. Furthermore, it will have a negative impact on Indian cement producers, who are already under pressure from rising raw material and energy costs," said Harshvardhan Patodia, president of the Confederation of Real Estate Developers' Associations of India (CREDAI).
Cement makers, he believes, will definitely have to pass on the cost pressure because oil prices affect over 60% of their company directly or indirectly.
After Russia's war on Ukraine raised fears of global oil supply disruptions, Brent crude prices reached $105 a barrel for the first time since 2014.
Niranjan Hiranandani, NAREDCO's National Vice Chairman, also emphasised the link between the likely rise in property prices and the rise in the costs of raw materials used in building, which is directly influenced by oil prices continuing to rise.
"Inflationary pressures brought on by increased crude prices affect both the rate of economic growth and consumer confidence. Increases in fuel prices have an impact on the cost of raw materials in the supply chain and logistics, resulting in an increase in building costs. This adds to the difficulties of an already troubled Indian real estate market, affecting liquidity management and, as a result, working cash for project development," Hiranandani said.
This, according to him, imposes an additional burden, and if no measures are taken to rein in fuel costs, it can make projects unviable and prune margins.
Industries across the economy, including real estate, are hoping that authorities would assure course correction, keep fuel costs under control, and ensure that logistical expenses are in line with costing projections, ensuring timely project development and delivery to end-customers.
Despite the fact that global fears over the Omicron version have abated, the growing demand-supply imbalance has damaged investor confidence around the world. Crude oil prices, regardless of whether or not it is involved in the real estate sector, play a critical role in the growth of any industry.
While developers expect to have to raise housing prices, they have expressed their inability to specify a specific amount or range because the situation is still fluid, and the final decision will be based on how long the conflict between Russia and Ukraine continues and how other major countries react to it.