Meanwhile, Rajat Kathuria, CEO of Signature Global, highlighted that urbanisation trends remain strong, with Gurugram and NCR witnessing a significant shift.
Below is the verbatim transcript of the interview:
Q: Are we starting to see the negative wealth impact regarding equity markets showing up in real estate sales?
Hiranandani: The reverse is true. We are seeing a 10-12% growth in volumes that has already happened across the board. And that is a positive story in terms of real estate growth. What is worrisome is not about the growth of real estate, but the growth of affordable housing. That is a negative. Look at the ideas and numbers because in 2020 the affordable housing segment was 40% of total demand. Today, that is less than 20%. So, you can see what growth is. So, despite a 10-15% annualised growth in the last four or five years, a downward trend is seen in terms of affordable housing growth, and that is the biggest challenge as far as India is concerned.
We also see the luxury segment, and the mid-segment grow faster. So, you are going to see growth of 10-15% annually over there. But of course, there are sectoral setbacks. So, you do see certain areas in the country where the growth story is not as strong, especially where the infrastructure is not so good, or the traffic issues are not being sorted, or there are environmental issues which are being challenged. So, yes, I am talking about average growth throughout the country. So overall, I can tell you, this year equally will see 10% growth in terms of volumes of this thing.
My challenge has been the government trying to do taxation, which is far beyond the thing. Let’s take Mumbai as an example, 50% of the cost of my flat in the redevelopment property that I am doing goes to the government directly and indirectly. So, there is land under construction, development charge, additional floor space index (FSI), cost, all the rest of it put together, goods and services tax (GST), stamp duty etc. comes to about 50% of the total value of the flat. Now, with the ready reckoner rate, again slated to go up in Mumbai and Maharashtra, you will see further deterioration in terms of affordable housing taking place. So, the government has decided to collect more funds, taxes and development charges from real estate.
So, while on one side the housing is growing, the volume is growing, numbers are growing, and prices are going up. On the other hand, affordable housing is becoming a bigger challenge in the country, and I think that is an issue which the government is not able to address despite the Pradhan Mantri Awas Yojana.
Q: On a lighter note, if the stock markets remain like this, those looking to buy premium will have to go affordable.
Hiranandani: As it stands just now, it is not happening. I can tell you that much on the ground.
Q: So, you are saying there is no impact whatsoever, even the marginal impact of the markets being depressed?
Hiranandani: It is the reverse. It is going up. People are moving from the stock market into the real estate market.
Also Read: Big worry for NCR and Mumbai real estate markets
Q: In your market, Nation Capital Region (NCR), Gurugram. I think you did tell us last time that it is maybe at the margin, the sales velocity is slowing down.
Kathuria: Real estate tends to be a very localised, micro-market-driven business. What we are witnessing in Gurugram is that while urbanisation trends are strong across the country, Gurugram specifically, as far as the NCR market is concerned, has seen strong migration trends from other parts of the region into people moving into Gurugram for a variety of reasons. And we have been, I would say, up to tapping this opportunity.
So, the trend, by and large, is that the price rise, which saw a very sharp spike about 1-1.5 years ago, price rise has moderated, while it continues to go up because there is still a lack of good quality homes which are available to customers. Hence, the price continues to go up, but at a moderated pace, and transaction volumes are steady. So, I agree with Hiranandani that volumes are staying steady, and we are not seeing any sort of decline in transaction volumes as of now.
Q: In the city of Mumbai, which is where you operate. How is so much supply which is coming up? I remember we had one of the consultants on the programme and he gave us a figure, and this is at the premium end between ₹15 crore to about ₹40 crore. If you have that number weigh in. We have enough supply, which is coming up for the next many years in the city of Mumbai. So, supply, essentially, according to him, will overwhelm demand in that product category. Come in there.
Hiranandani: I cannot vouch for the future. I can only tell you what the present demand is. The present demand is enormous. So, there is no shortage of demand as it stands today. Number two, you have to see very clearly what is happening in terms of total numbers. So, while the total volume of real estate has gone up, while the stamp duty collections have gone up, while the realisation of GST has gone up, the total number of apartments being sold has come down. That is the challenge.
Q: ….but that is the affordable side, right?
Hiranandani: Yes.
Q: But affordable, for the last few years there has been no momentum in affordable. We have spoken with lenders and Kathuria who runs Signature Global, he has moved from the affordable side to premium because there was not very much demand but that also was a function of premiumisation, and booming markets and that is why started with that question.
Hiranandani: I beg to disagree with you, even in the cases of Panvel, where we operate in a very large way, the demand for two and three-bedroom is much higher than the one-bedroom that we are seeing. And we are also seeing that this upgradation which people want, people are looking at larger apartments and other luxury items which are to be added, even in the other cases. So, like what you have the premium cars are being sold better than the other, which is the lowest value model, which is contrary to what the market expected it to happen. Similar is taking place in the real estate sector.
Also Read: Keystone Realtors eyes leadership in Mumbai’s redevelopment market
So, what you are seeing in the automobile sector, we are seeing it in the real estate sector, and the government is responsible for it because they are constantly increasing the taxes in terms of land, the value of land, the ready reckoner rates, which forces you to sell at higher prices, and other things, even in the case of land. So affordable housing is getting pushed out of the market. So, it’s not only developers who are doing it, or the market is doing it, we are also creating a large amount of affordable housing to become unaffordable automatically by way of taxation.
So, both the reasons are there. One, the market side, in terms of the visualisation of what the customer is doing, his ability to get loans from the banks at the lower rate, and this rate has come down; from 8.7% it is already down to 8.4-8.5%. I think with the reduction in interest rates, which will take place, the EMI will keep on following. So, you are going to see much more buyers in terms of housing. But maybe, I don’t know about the segments, and I do hope affordable housing takes a pickup also. I am praying for it.
Q: There is a new player that is going to be coming into the market with cables as well as wires. That is UltraTech Cement, and as of now, you must be sourcing some cement from them. Does it make a difference if you are sourcing cement from a particular brand, will you also be looking to take your cables and wires, or do you think the market is good enough and you will continue with the current relationships that you have? Just wanted to understand from a stock market perspective because a lot of the cables and wires players were very nervous yesterday, from a pricing perspective, as we have a new player that is coming in the next two years or so. Your take?
Hiranandani: Every market is challenged by new players. So, there is nothing new about it. We have seen new people in terms of the supply of materials every time and everywhere. So yes, there will be a challenge to the market in terms of it. Just like new players in the real estate market will make a difference, new players in every market are going to certainly make a difference. And I would look at the challenges as a real challenge.
So, you will see new suppliers of material. We already do. We resource different materials from different suppliers, and new suppliers come up with innovative products at very competitive rates. Incidentally, the overall prices have gone up, whether it’s cement, steel or others, in the last five years. So, anybody new coming in will get an entry-level, whether they can sustain the competitive prices or not. I don’t know, but you can see the profitability in terms of the companies which are taking place and the bottomline of the company.
Also Read: Real Estate Boom: Housing prices in India’s top cities rise 10%, Delhi NCR records highest surge
Q: In fact, it would be good news for you because you all will have a greater number of suppliers, and in fact, you could get competitive rates as well. So better news for real estate players is that you have a higher number of cable and wire players.
Hiranandani: No. The land is the biggest problem, approvals are a big problem, and the cost of development charges is a big problem. The ease of doing business in real estate is getting worse, not better.
For the entire interview, watch the accompanying video.
