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

The markets are very strong. And not only the big cities but also lots of Tier II towns are really driving sales. Value developments are happening out there. The Government’s focus on infrastructure, building new cities, and allowing satellite towns to get developed (are) working. 

And if you’re talking about markets, then they 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, especially in Maharashtra and Haryana - could have led to a certain amount of breaking at that point in time.

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

I believe interest rates should go down. In fact, interest rates on home loans should actually be subsidised further.

The Government wants to encourage small businesses. But since these entities don’t have official books of accounts—say at a Kirana store—they don’t get loans from banks. Rather, they go to a micro-finance institution, borrowing at rates as high as 14 per cent, which is ridiculous. 

Another reason I think home loan rates should come down is because delinquency in the sector is at an all-time low of 1.17 per cent. In comparison, even at a 6-7 per cent interest rate, automobile loans have 3-5 per cent delinquency out there. And finally, you cannot run away with the home or strip it down. So there’s such a rock solid asset over here (homes) - which appreciates - and 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 rises that take place are individual projects that grow in price over the life cycle of the project itself. So, for instance, in Versova (Mumbai), the earlier price points were around d ₹45,000 per sq ft. Now that work on the coastal road has begun, say since early 2024, the price being commanded there is around Rs 60,000 per sq ft. This is what has happened to that one little market. 

Then, in Noida, which was absolutely down the dumps a few years ago, you see the kind of velocity because of the infrastructure buildup that’s taken place. And we are seeing this across the country.

Individual governments are, I would like to think, competing with one another for a share of the market. So, certain high-end developments are out there and all over the country, pushing up home prices.

So, it’s not like a price rise happened in a day or two. Take the case of Versova. As the coastal road project construction began, and in a one-year period, the price rise happened, but specifically for sea-view or sea-facing properties. Compared to that, homes located some three roads behind, there the price rise is, say, 10,000 per sq ft (25 per cent odd). Also, the connectivity with Versova is good, and when you have that kind of connectivity, prices will go up.

Construction costs have gone up by almost 20%, 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, and we’ll always continue to work around those margins. 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, when we talk of investors, we refer to funds that actually come and block their money because they believe in a particular product or its growth potential. So, for a particular product, they kind of indirectly finance the developer through bookings.

But I can tell you certainly that a very large part of our market is not investor-driven.

It is driven by end users. And the proof of the pudding is that, if you go and check the registrations that are taking place of properties right now, they are much higher than they were ever before. So you know for a fact that end-users are buying homes. 

When a Shah Rukh Khan movie is released, everybody talks about it. High-priced homes have that quality. While there is hype about one flat of ₹100 crore that has been sold faster when a project gets launched, they don’t make as many headlines. 

Also, I’m not saying that the market has not increased in size. It has, too.

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 of the Government.

Now, the flip side. It’s true that larger homes are selling. Also, look at how things have 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 kind of number growths, 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.