New Delhi/Bangalore: Hit by slowing demand for upscale housing as financing costs touch the highest level in seven years, realty developers are building homes in the Rs40 lakh-Rs60 lakh range to tap higher consumer demand in that price bracket.
Property firms are reducing the sticker price on flats by building low-rise (up to three floors high) blocks and reducing the floor area in each unit.
Last month, Unitech Ltd, India’s second largest listed developer, launched flats in that price range at its 320-acre luxury residential township, Nirvana Country, in Sector 50 of Gurgaon, near New Delhi. The township was initially planned for building villas, high-rise apartments and developing individual plots.
The newly launched section called Woodstock Floors offers two- and three-bedroom flats. The launch followed waning demand for villas costing between Rs1.2 crore and Rs3 crore. “But there is strong demand from buyers in Gurgaon for products priced in the Rs40-75 lakh range,” Sanjay Chandra, managing director of Unitech, said last week after the firm announced its results for the April-June quarter.
That’s a change since August last year, when Chandra said that it was difficult to build houses for middle-class customers in Gurgaon given the soaring cost of real estate in the suburb.
Home loans have become more expensive in the meantime, after the Reserve Bank of India raised its key interest rate three times in two months to douse inflation that rose to a 13-year high, and took money out of the banking system by raising the proportion of deposits that banks have to park with the central bank.
Unitech’s low-rise blocks offer flats in sizes ranging from 942 sq. ft to 1,624 sq. ft. Since the launch of Woodstock Floors, Unitech has sold 260 units, Chandra said. At its development Uniworld City in Mohali, near Chandigarh, too, Unitech launched such flats at a starting price of Rs45 lakh.
DLF Ltd, India’s largest developer, also has launched homes in the so-called affordable category in Manesar, beyond Gurgaon on the Jaipur highway, and Indore in Madhya Pradesh.
And BPTP Ltd has launched low-rise apartment floors called BPTP Park Floors in Sector 77 in Faridabad, near New Delhi. The project offers flats on independent floors for about Rs20-30 lakh.
“In the last five-six years, all the developers were focusing on the upper middle-class segment,” Pankaj Pal, president of sales and marketing at Vatika Ltd, said. “This segment is almost saturated now, so developers are targeting the middle-class category of buyers.”
Vatika has shifted its focus from building air-conditioned, high-rise apartments to middle-class houses. It is building low-rise flats in Jaipur and in its India Next township in Sector 83 of Gurgaon. The two-three bedroom flats in Gurgaon range from 1,225 sq. ft to 1,450 sq. ft and cost between Rs29.5 lakh and Rs36 lakh.
There is a glut in the luxury apartment segment because investors, who buy the asset expecting valuations to rise rather than to live in them, made up some 60% of the buyers and have exited the market, says Pankaj Renjhen, managing director, Mumbai, at Jones Lang LaSalle Meghraj, a real estate services firm. “The remaining 40% of the buyers, out of which 15-20% have put their home-buying decisions on hold because of high home loan rates, prefer to buy mid-income houses,” says Renjhen.
Building low-rise flats is cheaper by Rs400 a sq. ft compared with high-rise apartments, says Unitech’s Chandra. With an eye on costs, developers are trying to keep the building structure simple. “We are doing away with parking spaces, basements, large lobbies and extra elevators to reduce costs,” Pal of Vatika said.
The trend extends to Bangalore and Mumbai. In a price-sensitive property market such as Bangalore, Puravankara Projects Ltd has kept luxury projects on hold. “Who will buy luxury projects in this kind of a market?” asks Ravi Ramu, director, finance, Puravankara Projects. “We have priced most of our new projects in the Rs40 lakh to Rs60 lakh segment because it caters to the average Indian customer who wouldn’t buy at a price more than this.”
In Mumbai, ambitious developers, who hoped for a replay of the 2006 Mumbai property boom and launched luxury projects, admit their calculations had gone wrong.
“Among all our projects, the apartments which are still selling are in the Rs40 lakh-Rs70 lakh segment and that’s because the salaried people need homes and these are the only ones available within their reach,” said Sandeep Runwal, director of the Pune-based Runwal Housing Group. The group recently launched a high-end residential project, Runwal Inifniti, in Santa Cruz, a Mumbai suburb, and Runwal admits the firm is struggling to sell the Rs1 crore-plus flats.
In April, another Mumbai-based firm, Mayfair Housing Pvt. Ltd, had launched a premium residential project in upmarket Juhu and has sold only one of the six luxury apartments until now.
“Projects which are priced below Rs40 lakh have kept many builders afloat in a market where sales have gone down substantially compared to last year,” said Nayan Shah, chief executive officer, Mayfair Housing.