Listed realtors are raising prices but don’t confuse that for a trend

The second wave again halted activity in the sector, but large, listed players, it seems, are witnessing good demand as they have raised prices of certain property segments according to newspaper reports. DLF is reported to have said in its quarterly annual call recently that it is likely to increase prices of select residential properties by about 5% this fiscal. Other developers, including Sunteck, Brigade and Puravankara, have raised prices in the range of 2% to 5%.

Recently, the Noida and Greater Noida authorities have proposed to raise circle rates, that is, the rate at which a property is registered. The proposal is to raise circle rates in Noida, Greater Noida and along the Yamuna Expressway by as much as 40% and additionally apply a 5-12.5% surcharge on properties along the Metro route or near the expressway.

Increase in circle rate impacts sentiments as it signifies likely rise in land prices in future. In the light of these developments, should you as a homebuyer worry and speed up your decision to buy a house? Let us take a look:

Rising costs: The rise in property prices has been on account of the increase in cost of construction due to disruption in supply of raw materials, say experts. “A price rise of between 5% and 10% was inevitable, with the inflation in prices of major construction raw materials, including cement and steel, and the rise in labour cost. Moreover, the overall operating costs for developers have also gone up in the last several months, with many offering additional pandemic-related support and safety protocols to their workers on site," said Anuj Puri, chairman, Anarock Property Consultants.

The second covid wave had put most real estate developers in a precarious situation. “Already working at wafer-thin margins, developers are facing project delays, increase in input costs and diminishing ability to repay loans. With buyers becoming fence-sitters over the last quarter, sources of liquidity have dried up, financial constraints have doubled and the chances of making any profit have become a far-fetched dream for realtors. This has forced some developers to increase prices," said Hitesh Singla, co-founder and chief investment officer, Square Yards.

Varying price rise: Price rise is not happening uniformly across the board. Listed big developers have seen good demand compared with smaller developers, and, therefore, are able to increase prices. Homebuyers have leaned towards developers with a good track record even prior to the onset of the pandemic. This helped large, listed players report healthy sales and collections in recent years, despite the prevailing liquidity crisis and unfavourable supply-demand dynamics. The implementation of Real Estate Regulation Act and GST had already been supporting the market position of these larger players. Post covid-19, better demand prospects, strong balance sheets and adequate liquidity have enabled larger developers to weather the storm better than smaller players, who have been finding it hard to cope with the prevailing market conditions and hence have been able to raise prices. A report from ICRA says, “While the broader market remained 24% below pre-covid levels on a year-on-year basis in Q3FY21, the top 10 listed realty players witnessed a 61% year-on-year growth in the same quarter."

Premium inevitable: The current price rise in the realty sector is due to the increase in the cost of construction. The prices are unlikely to go up abnormally high but larger reputed developers have always commanded a premium when compared with small developers and will continue to do. So, if you are going for a reputed developer, depending on the demand for the project, you may have to pay a slightly higher price.