Housing, at what cost?

Can residential prices hold at present levels? Yes. Are they likely to drop? Not likely. But conditions apply in both cases, say developers.

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— Bijoy Ghosh

Location, quality and pricing hold the key.

R. Balaji

“Why the increase in apartment bookings today?” asks a senior executive at Khivraj Tech Park. “It is ‘Ugadi,’ an auspicious day,” explains Mr Ajit Chordia, managing director and promoter of a premium residential project, Opaline.

Of the 800 apartments priced between Rs 45 lakh and Rs 60 lakh that he announced a few weeks ago, he has sold over 300. Not bad, but not too good either. “If I had announced the project a year ago, I would have sold the entire lot by now,” he says.

He expects to sell more than half the apartments within a fortnight, well on target. But he is concerned — there is definitely a slowdown in bookings but builders cannot afford to cut prices, with the cost of construction on the increase. Developers are even thinking of introducing an escalation clause in the contract with buyers to compensate for the steep increase in steel and cement prices, he says.

The question among developers and apartment buyers is — Can residential prices hold at present levels? Yes. Are they likely to drop? Not likely. But conditions apply in both cases, say developers.

Rules of supply and demand

Apartment prices obey the rules of supply and demand as much as any other product. Demand exceeds supply, land cost and construction costs are rising and home rents are on the upswing. Why should prices drop? If enquiries and sales are slow, it is only because the end user is buying and investors are no longer interested. That is not a serious concern, especially for the established players with good product and pricing.

Invariably those stuck with stock are in the peripheral areas, about 25-30 km from a city suburb, where there is an oversupply with real-estate development happening ahead of common infrastructure and facilities. Or a developer saddled with land bought at a high cost might have read the market wrong, they say.

Mr R.S. Ajmera, President, Confederation of Real-Estate Developers’ Associations of India, New Delhi, says buyers are cautious against the backdrop of the economic situation — stock market volatility, inflation, and high interest rates… but prices are being supported by demand.

Referring to his own company’s project at Bangalore, Ajmera Infinity in the High Tech City, priced at Rs 2,500-Rs 3,000 per sq.ft, he says it is doing well. In the Western suburbs of Mumbai and Pune, for instance, apartments priced anywhere between Rs 4,000 and Rs 8,000 per sq.ft are considered comfortably priced and there is no let-up in demand, he says.

‘No price slump possibility’

Large developers with presence in several cities dismiss reports of a possible slump in prices. But a hike in prices to compensate for increasing costs is going to be tough.

An official from a leading housing finance institution says a price drop or slowdown in sales happens only in specific corridors where supply outstrips demand. Then the ‘price sensitivity’ is tested. Across the board slowdown of apartment sales — not for every one, they say.

A senior executive in DLF who, in line with company policy, did not want to be quoted says it is ‘illogical’ to assume prices could drop against the backdrop of the shortage of housing in cities. In DLF’s projects in Kolkata, Chennai, Kochi, NCR or Indore, applications for apartments in new projects outnumber the available apartments three to one. For instance, in the NCR, one of DLF’s projects at Rs 2,250 per sq.ft attracted over 2,800 applications for 780 flats. There is a surging demand in this segment. In Chennai, DLF is promoting a project at Rs 2,700 per sq.ft near the IT corridor and it is a sell-out, he says.

This is also true of premium housing where pricing is not a concern. In the NCR there is strong demand for premium luxury apartments with people shelling out Rs 9,000 and Rs 15,000 for every sq.ft, the official says.

‘Insatiable’ demand

Mr V. Suresh, Principal Executive Officer, Hirco, a Hiranandani group company, says the demand for housing is ‘insatiable.’ Whether Bangalore, Hyderabad or Chennai, the cities have failed in providing adequate housing while focussing on industrial investments.

Till a few years ago, over four-five years’ salary went into housing but now it is seven-eight years’ worth. But people are beginning to invest in a house earlier, often it is the first major investment that young couples make, and salary levels are higher, he says.

Hirco has projects in New Bombay, Panvel and Chennai and is looking at getting into Hyderabad and Bangalore. There is no dip in the sales in the price band between Rs 3,000 and Rs 3,400 per sq.ft. Whether Pune, Powai or Thane, as long as people see value for money, they are willing to pay, he says.

In a Chennai suburb, at Oragadam, about 40 km from the city, Hirco has sold out all its single and double-bedroom apartments even before commissioning the project. It started sales at Rs 3,000 per sq.ft and hiked rates to Rs 3,400, he says.

‘Affordable segment’

The numbers can change, but there is an ‘affordable segment’ — anywhere from Rs 30 lakh up to 60 lakh, depending on the city. For instance, in Chennai and Bangalore, it would be from Rs 25 lakh going up to Rs 40 lakh and in Mumbai it would be higher naturally — but this segment is seeing apartments being sold as fast as ever, he says.

Mr J.C. Sharma, Managing Director, Sobha Developers, which has projects almost exclusively in the Rs 50-lakh-and-above bracket, says the company has done better in 2007-08 than in the previous year.

Housing demand can only grow but at what price is the key. If the product is positioned properly in terms of location, quality and pricing there is no concern about selling. Those who find it difficult to sell are those who have made a mistake in positioning. So, when a few projects suffer, customers perceive it as a necessity that all projects cut prices, he says.

The Hindu Business Line : Housing, at what cost?