Puravankara Group CEO, ET RealEstate

September 22, 2023

Abhishek Kapoor, Group CEO, Puravankara, says “in south India, which is one of the most stable markets, an annual increase in prices in higher single digits is definitely something that one can bank upon across the southern region and it is driven by end users. It is not a speculative demand driven by investors. There is a consistent demand, consistent supply and a consistent appreciation of prices in these markets.”

Let us begin by discussing the changes that have happened in the Karnataka guidance value. That was in the works for a bit but what will be the impact on the ground, if at all, and for yourself as well?
The increase in guidance value will have an impact on the cost of approvals and also on cost of TDR along with, of course, the cost of stamp duty. There will be, obviously, an impact across the industry on these costs for developers. On the customer side, obviously, as long as there is no unaccounted money involved, most of the trading has been happening or buying has been happening at market values, which will kind of get matched as far as the guideline value is concerned.

So, as long as that is happening, there will be no impact on the customer side other than these costs which will get passed on to the customer. So, we will see some amount of incremental costs getting passed on to the customers and hence increase in prices. Having said that, as far as Puravankara is concerned, fortunately for us in Karnataka, we have reached a stage where we have almost all the approvals, so we are not impacted much on account of this increase in guideline value. But having said that, going forward, we should be mindful of the cost when we are underwriting new acquisitions.

But given the fact that the cost for developers might increase and there might be a bit of pass through to the customers as well, do you think the demand is strong enough to take that pricing increase?
Oh, yes, very sure about that. We have seen significant demand. I mean, if you look at the numbers across Bangalore or across Karnataka, in fact, most of the country, right now you are seeing very good numbers. I do not think there is any issue there. In fact, there is a shortage of supply. It is up to us how much supply we can bring to the market at this point in time. If you look at the inventory, it is down to eight-nine months as far as Bangalore is concerned, for example. Everywhere across the country, it is less than 12 months. I do not see that as a challenge. Price should be able to absorb this incremental cost.

One thing I want to understand from you is the way the real estate cycle is reversing after a 10-year lull. Just in your region, around Bangalore, how has the price rise been in the last four-five years? Has a 10% price rise already taken place or lower?
If you look at the average price realisation through the Covid period and later, of course, it plateaued for a very long time. In real terms, there was a price correction over a period of time. Post Covid, we have seen price appreciation and that has been anywhere between 10% and 12% on an annualised basis and that is a very reasonable number given that for the longest period of time on a real basis, the prices were not appreciating. But having said that, it is very important to see that in any project between the time of the launch and delivery, typically there is a 50-60% price increase across the board. So, it depends on how you look at pricing. In ready-to-move-in inventory versus a new launch, there is a gap and a price change that happens between the two. Keeping that in mind, the average realisation has gone up by about 10% to 12% and at this point in time, the trend is continuing.

There is always the premium of ready inventory or the visibility of possession gets the price moving slightly higher while the new launch is slightly at a discount. For the next five years, do you think a reasonable high single-digit appreciation visibility exists in your region? Also, how much is the ready inventory, especially for the premium side? Is there a balance?
Oh, yes. If you look at the current situation, you are down to less than nine months of inventory in the market and if you look at ready-to-move-in inventory, I do not think there is anything is available in the market and that is the biggest challenge.

I think it is about how much supply you can bring into the market at this point in time. Fortunately or unfortunately, the number of developers due to consolidation has also come down significantly. It is not that there are a larger number of players who are bringing supply to the market and this obviously is strengthening the larger brands which are taking away more and more market share.

The way I see it is that at this point in time especially in south India, which is one of the most stable markets, an increase of high single digits is definitely something that one can bank upon in most of the projects across the southern region and it is driven by end users. So, it is not a speculative demand which is driven by investors. You do not see a significantly high mid-teen kind of appreciation and then a drop and things like that. You see a consistent demand, consistent supply and a consistent appreciation of prices in these markets.

So, that trend will definitely continue. It is just a matter of how much supply the market brings in and we will have to wait and watch. But at this point in time, I do not see that as a challenge at all for the next two to three years.

  • Published On Sep 22, 2023 at 09:11 AM IST

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