It is reported that Indian construction and infrastructure sector is feeling the heat of rising cement and steel costs following a steep increase in the prices of these primary inputs. Steel contributes about 15% to 20% of the total cost, whereas cement contributes about 10% to 15% of the total cost of a project.

Over the past several weeks, construction prices have climbed about 10% to 15% as the combination of a weak dollar and high crude oil prices filter their way through the economy. The weak dollar and global demand have caused base materials products to increase, thereby causing an upswing in building material prices. High fuel prices further compound the problem by naturally increasing the transport costs.

According to sources, in the past 3 months, the cost of construction has already shot up by about 10%. According to analysts, steel prices in the domestic market have gone up by 30% in the last 6 months, though now they are cooling down.

Steel and cement account for 33% of construction costs and every 50% escalation in the price of these materials will increase the cost of real estate by INR 75 to INR 100 per square feet. The average cost of freshly developed real estate will end up 8% to 10% higher from original estimates.

Mr Vikaas Ahluwalia director of Ahluwalia Contracts India Limited said that "There has been an increase in cement and steel prices which has led to increase in the cost of construction. This has also put a question mark on our efforts to provide affordable housing to middle and lower middle segment buyers. However, this is not an ongoing price hike trend as it can be attributed to market forces. The mismatch between demand and supply of these materials is expected to be normal soon and the high prices of steel and cement will gradually cool off."

Mr Kamal Taneja MD of TDI Group said that "There will be a significant rise in the cost of construction, by about 20%, due to the rise in cement and steel prices. Selling prices of property are expected to shoot up substantially in the near future."