Increasing demand across residential, commercial, warehouse and office spaces, is driving sales, even as developers contend with the upsurge in construction costs due to the hike in raw material costs. Developers are also going digital - from project conceptualisation and designing to planning and project management to using advanced construction equipment and innovative construction techniques – they are modernising and upgrading their front- and back-end processes. And despite the many hiccups, the sector is set to make a strong comeback in FY22.
The real estate sector, which had recently started seeing green shoots of revival amid record-low home loan interest rates, stamp duty reduction by state governments and stable prices (most developers have not increased property prices while prioritising liquidity over profitability), is once again faced with many issues. Within just five weeks, the Repo rate has been hiked twice, even as the rising cost of construction owing to the increase in price of raw materials like steel and cement continues to impact the sector.
The real estate developers that NBM&CW spoke with, were of the opinion that it is time that CREDAI and NAREDCO approached the Ministry of Housing & Urban Affairs (MoHUA) or even the Government to seek their intervention in arresting the increase in the cost of building materials.
However, industry insiders say that the issues are under consideration and their impact will be short-lived. Real estate sales will bounce back, and sales will touch new highs in the coming years, with demand increasing across all sectors and industries, including warehousing and data centers.
What’s more, the real estate sector is experiencing a digitization wave and players are adapting to the new normal. From virtual site visits to online payments, they are using innovative technologies and tools which are opening new avenues for growth. Many are deploying advanced construction equipment, technologies, and even project management solutions to increase construction efficiencies and reduce project cost.
Real Estate Developers Praveer Srivastava, Senior Vice President & Head - Residential Sales, Prestige Group; Ramani Sastri, Chairman & MD, Sterling Developers; and Lindsay Bernard Rodrigues, CEO & Co-Founder, The Bennet and Bernard Company, give an insider’s view on what’s impacting the real estate business.
How do you see the growth potential of the real estate sector in the near-term in view of the challenges it is facing currently?
Praveer Srivastava Prestige Group We have seen a very healthy uptick especially in residential real estate segment post-Covid, with historic low interest rates.
Praveer Srivastava, Prestige Group: Real Estate is an essential need of the people as well as the economy. In our country, we have seen consistently over the past 3 decades, a good economic momentum along with which comes job opportunities, expanding and modern cities, and increased spending power. We have seen a very healthy uptick especially in residential real estate segment post-Covid, with historic low interest rates and an increased priority given to owning a home in a secure and well-equipped community. We see the trend continuing in the near future. There is an unmet need for good quality housing at reasonable pricing in large swathes of our country, which hopefully shall drive this growth for Real Estate.
Ramani Sastri, Sterling Developers: India’s real estate sector is witnessing a healthy increase in demand in recent times which is expected to hold for the rest of the year and beyond. From residential market to commercial spaces, the overall market outlook is positive. Customer confidence and market sentiments have strengthened due to the acknowledgment of real estate as an asset that is a guarantor of a secured future. The tide has surely turned, and people are buying homes to actually stay in them and not for investment purposes alone.
The conscious consumer shift towards quality, high growth locations, amenities, and lifestyle, are some of the strongest trends that have been reshaped and will materialise in the future. We are also witnessing continued demand for ready to move and nearing completion projects. The pandemic has also heralded a shift in customer preference towards organised developers with sound credentials and an excellent track record. There has been a huge amount of pent-up demand generated over the past couple of years, which is now unlocking, giving a positive flip to the market.
Going forward, we expect to see a little more focus on product differentiation and customisation in terms of what we as developers have to offer. Moreover, a higher focus on designing spaces to be more functional and multipurpose will take on greater importance. The Indian real estate sector is expected to reach a market size of $1 trillion by 2030 and will account for 13 percent of India’s GDP by 2025.
Lindsay Bernard Rodrigues, Bennet and Bernard: The real estate sector is experiencing an increase in demand in 2022 and this momentum is expected to continue. Despite the many pandemic exigencies, the sector has shown resilience and steady growth from 2021. The sector is set to experience significant growth in the residential segment. Certain projections state that the sales momentum is expected to increase in 2022 as prospective homebuyers will continue to prefer bigger homes and better amenities, and attractive pricing will keep them interested in sealing the deals. Additionally, the luxury housing market is poised to touch new heights in the coming years.
The real estate market is also undergoing a digitization wave and players are hard-pressed not to adapt to the new normal. From virtual site visits to online payments, developers are getting accustomed to using innovative technological practices and tools across different stages of business operations. Digital walkthroughs have proved to be the biggest game-changers for both developers and buyers, with industry pioneers building more layers to the complete marketing experience. These trends have certainly opened new pathways for the industry to grow.
Within just five weeks, the Repo rate has been hiked twice; what impact would this have on the real-estate market?
Praveer Srivastava, Prestige Group: The increase in rates was expected and was even overdue to contain inflation. We have historically never had such a low interest rate scenario in the recent past and we could not have continued in this state for long. In the short term, it will definitely create some ripples, though even today the rates are quite low. The translation of 1% interest hike on the EMI works out to Rs. 62 per lakh on a 20-year loan tenure. So, in the future, with the kind of end-user demand we have seen for quality housing, we do not see a big impact of the recent hike. However, as we approach home loan rates of 10%, it could dampen demand.
Ramani Sastri Sterling Developers Customer confidence and market sentiments have strengthened due to the acknowledgment of real estate as an asset that is a guarantor of a secured future.
Ramani Sastri, Sterling Developers: We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on homebuyer’s sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic.
However, there has been a fundamental change in buyers’ expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates. It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability. There is still pent-up demand and even after the repo rate hike, affordability is still high, and the home buyer needs to take advantage of that in the short-term.
Going forward, we hope that the government continues to pay attention to the requirements of the sector, which is one of the largest employers in the country. We believe the long-term structural growth story of India is intact and will continue to drive overall demand and consumption for key sectors of the economy.
Lindsay Bernard Rodrigues, Bennet and Bernard: Even with an increase in interest rate on home loans by 50-75 bps from current levels, the demand is expected to remain firm. Some buyers are apprehensive and they might as well adopt a wait and watch attitude. But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decision. The rate hike won’t have a significant impact on homebuyers as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes. The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors.
Rising cost of construction owing to the continuous increase in the price of raw materials like steel and cement is another major issue confronting the real estate sector. Do you think CREDAI and NAREDCO should ask the Ministry of Housing & Urban Affairs (MoHUA) to intervene and arrest the price hike?
Praveer Srivastava, Prestige Group: This is a concern for not only our industry and country, but across the world inflation in commodity prices has hurt many businesses. Government has recently taken some very welcome steps towards taming the raw material pricing for construction industry. Needless to say, we need to have a stable cost environment to have a reasonable pricing for the customers. Our sales and price commitment from the customers are front-ended while the cost and spends towards construction of projects happen over the lifecycle of the project. In this scenario, sudden increase in raw material prices leads to disturbance in completing the project on time. We would definitely like to see more initiatives from industry bodies CREDAI and NAREDCO and the government.
Ramani Sastri, Sterling Developers: The situation today is quite stark. The spike in prices of essential raw materials has emerged as a major challenge for developers. At a time when real estate in India has started showing green shoots of recovery, a steep jump in the prices of key raw materials like cement, iron and steel, etc owing to supple-side constraints, are impacting the sector as raw materials constitute a predominant share of the total costs of construction. The constant rise in fuel prices is also a major cause of the rise in price of raw materials. It is important to curb the sharp increase in input cost of raw materials so that the recent increase in housing sales is sustained.
Lindsay Bernard Rodrigues, The Bennet and Bernard Company The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors.
Lindsay Bernard Rodrigues, Bennet and Bernard: Due to the increase in the price of raw materials, the cost of real estate projects has gone up manifold. The developers are facing the brunt of the escalating cost of construction while the sale price remains unchanged. NAREDCO and CREDAI should definitely take it up with the concerned authorities on how best we can stem the increase in the cost of building materials. For one, while the price rise may be justified at one end, it is really important to see the cascading effect of such price rise on the common man – the home buyer.
What steps will developers take to mitigate the setbacks?
Praveer Srivastava, Prestige Group: Along with the healthy uptick in the end-user demand, we are also seeing a gradual natural strengthening of prices. This is in part acting as a buffer against the increase in construction prices. Also, increased sales are resulting in lower operational costs and short-term financing costs. We will ensure that we continue to provide quality housing at reasonable prices to the customer, towards which we will explore various options with our retail lenders to reduce the impact of the hike in home loan rates on the customer’s wallet.
We shall continue to invest in value-engineering and product innovation to provide products and consumer offerings which serve specific customer segments and micro-markets where there is decent appetite for a quality product. As long as the economic growth is on track and home loan interest rates are in single digits, there should not be any issues.
Ramani Sastri, Sterling Developers: With thin margins, developers may not be able to absorb rising costs and unfortunately may have to pass on the burden to homebuyers, which may not augur well for the industry’s growth momentum. If corrective steps are not taken in a timely manner, property prices across all segments will shoot-up, hampering the Housing for All mission of the government.
Lindsay Bernard Rodrigues, Bennet and Bernard: The effects of the pandemic and the changes in policy have not affected most of our buyers who are in the luxury end or HNIs. One of the sole criteria of being ahead in the business is never to compromise on quality. Construction is a cyclical industry, where changes in the economic climate have a significant impact on the sector. The construction costs are expected to increase due to climate change, mainly due to a rise in the prices of materials.
Are you using advanced construction equipment and project management technologies for reducing your project costs?
Ramani Sastri, Sterling Developers: Advanced technology has ensured that we’re able to build stronger, taller, and more energy-efficient structures. It has also made construction sites safer and workers more efficient. It has allowed us to increase productivity, improve collaboration, and tackle more complex projects. Construction technology involves using innovative tools, machinery, modifications, software, etc. during the construction phase of a project; they enable advancements in the field of construction, including semi-automated and automated construction equipment.
Today, new technologies in construction are being developed at a breakneck pace. Technologies like connected equipment and tools, telematics, mobile apps, autonomous heavy equipment, drones, robots, augmented and virtual reality, and 3D printed buildings are here and are being deployed across the world. Adoption of all these technologies will go a long way in reducing overall project cost and enable faster completion.