Infra boom and demand drive residential sales; interest rate cuts essential: CREDAI’s Boman Irani

The markets are very strong. Not only big cities but tier II towns are also driving sales. Value developments are happening. The government’s focus on infrastructure, building new cities, and develop satellite towns is working. 

Markets are good, too. For instance, the Mumbai Metropolitan Region (MMR) saw a 26 per cent y-o-y increase in sales in H1 (April – Sept). 

Home sales haven’t slowed down. I understand that having two elections back to back –in Maharashtra and Haryana – could have resulted in a break at that point in time.

If I go by the numbers, recently in Noida recently (by Gaurs), around ₹1,200-crore worth of stock was off-loaded in three days. We’ve seen successful launches in Mumbai, especially in the ultra-premium category. In our case (Keystone) of 15 high-value apartments – works on most of which are still at the basement stage – we’ve sold 11 (units). 

Interest rates should go down. Those on home loans should be subsidised further.

The government wants to encourage small businesses. But entities like a kirana store don’t have official books of accounts. They don’t get loans from banks and have to go to a micro-finance institution, borrowing at rates as high as 14 per cent. 

Rates on home loans should come down because delinquency in the sector is at an all-time low at 1.17 per cent. In comparison, even at interest rates of 6-7 per cent, automobile loans have 3-5 per cent delinquency. One cannot run away with their house or strip it down. It’s a rock solid asset –which appreciates–and (that’s why) people are buying homes. So, interest rates should be subsidised.

Today, velocity (how quickly properties are sold) is the new premium developers try to take. The price rise is individual projects growing in price over the life cycle of the project itself. For instance, in Versova (Mumbai), the earlier price points were around ₹45,000 per sq ft. After work on the coastal road began, the current price is around ₹60,000 per sq ft.

In Noida, which was down the dumps a few years ago, the velocity is because of the infrastructure buildup there. And we are seeing this across the country.

Individual governments are competing for a share of the market. So, certain high-end developments all over the country are pushing up home prices.

This has not happened in a day or two. As the coastal road project construction began in Versova, the prices went up, but specifically for sea-view or sea-facing properties. Compared to that, homes located some three roads behind are priced at 10,000 per sq ft (25 per cent odd). A plus is Versova’s connectivity with Versova is good.

Construction costs have gone up by almost 20 per cent, and not because of a rise in steel or cement but because of the DCPR norms. 

So, it is not that developer margins have gone up. We are always working on a margin of 20 – 30 per cent. We are in a high-risk, low-velocity business.

Different parts of the country operate differently. Certain markets operate a lot on the investor base. However, the investor base we are talking about is more of a structured investor. They are no longer the unstructured ones who come in, buy stuff, push up prices, and then exit. 

Today, by investors, we refer to funds that come and block their money because they believe in a particular product or its growth potential. They indirectly finance the developer through bookings.

But a very large part of our market is not investor driven. It is driven by end users. If you go and check the registrations of properties right now, you will see that they are much higher than ever before.

When a Shah Rukh Khan movie is released, everybody talks about it. High-priced homes have that quality.

Market has also increased in size.

We often discuss the lack of affordable homes. However, 45 – 60 sq metre homes are still being sold, but not in the same price bracket that the government categorises as affordable (₹45-lakh price bracket). So, the sales numbers have increased, but they no longer come in the ₹45-lakh price bracket.

Things have also changed. In 2018, one company promoter hit the ₹100-crore bracket; in 2022, there are 25 such promoters a month. Start-ups have come in, wealth distribution has happened, businesses are doing well, and an infrastructure boom is taking place. This leads to growth in the overall purchasing power of the people.

Earlier, a person would buy a home and fit his family into it. Now, people are buying homes that are suitable for their families. The concept of affordability is also changing.

The upper middle class will grow from 30 per cent now to 63 per cent in about two decades. And in this period, the lower middle class is expected to shrink from 67 per cent to 14 per cent. When you have these kinds of growth, affordability as a concept will change. No longer will people ask for a ₹45-lakh home. Rather, they will happily take up a larger home at a larger price point.