• Industry
• 3 min read

Construction costs up 33%; Builders in Bengaluru face margin squeeze as sales slow down

Karnataka's real estate sector is undergoing a significant upheaval, primarily due to transport restrictions from Tamil Nadu affecting material supplies. Builders are struggling with dwindling availability of crucial components such as sand and jelly, alongside escalating costs of cement and steel. This situation poses a risk of delays in construction projects, inevitably affecting homebuyers' expected timelines.

Builders said there has been a shortage of sand and jelly, while cement and steel prices are 8-10% higher. Sand prices have risen from Rs 250-300 to Rs 450-800 per tonne, nearly doubling costs. Over 70% of Karnataka’s stone crushers and another 15-20% near the Tamil Nadu border, around Krishnagiri, are affected by supply disruptions.

Farook Mahmood, president emeritus, Bangalore Realtors Association India (BRAI), said: “The four-month Rera extension offers some relief, but projects could face delays of at least six months, as the Tamil Nadu ban extends until Jan 2027. Construction costs could rise by Rs 250-400 per square foot. Builders are sourcing materials from neighbouring states or available market stocks at higher prices. Builders are not even insisting on realistic prices at this stage; they need supplies to complete projects. Delays will affect homebuyers, who may have to pay both pre-EMIs and rent while waiting for possession.”

BRAI said it had been discussing the issue, while contractors’ associations were expected to take it up with the govt.

Suresh Hari, partner, Vishal Promoters & Builders, said: “Under Rera, we cannot revise prices once committed. When material costs rise, builders must absorb losses or delay sales, with buyers ultimately bearing indirect price hikes. We can source materials in advance, but then storage and holding costs go up. At present, we have stored in advance and managed, but in the long term, there needs to be a regulatory mechanism.”

Builders seek govt intervention and their key demands include resolving the double royalty issue, allowing compliant crushers to operate for extended hours, coordinating with the Tamil Nadu govt to permit royalty-paid materials with e-permits in border districts, deferring premium and approval fees for three months, expediting approvals and publishing a revised summary schedule of rates.

Ramani Sastri, director, Sterling Developers, said: “The gap in all construction products is widening and the projects are slowing down considerably. The cost of construction has gone up by about 15 to 18% and is likely to go up further. Rera extension can only help soften penalties of delays and nothing else.”

Confederation of Real Estate Developers’ Associations of India (Credai) said the industry welcomes and encourages measures to bring costs down. The body said it has had a meeting with the govt officials scheduled next week. Quarries and aggregates are under pressure, while the sector is also looking at alternatives in paints, tiles and sanitaryware, all linked to petrochemicals. In Morbi, Gujarat, more than 200 building material units have reportedly been shut, adding to supply concerns.

Bhaskar T Nagendrappa, president, Credai Karnataka, said: “The cost has gone up initially during the western Asia conflict, but now the recent ban has fueled more. We will meet with the govt and express our concerns and solutions.”