Residential real estate at a 15-yr high; commercial may see best ever year: Anuj Puri

“I think after a very-very long time I have discovered that the developers have been extremely mindful of bringing in more cash flows and deleveraging their position rather than continuously increasing the prices and somewhere hurt the sort of sales of their residential,” says Anuj Puri, Chairman, ANAROCK Group.

Let us just get in a sense as to what you are seeing when it comes to the trend for housing prices in the Indian cities. Clearly, it seems that it has been on a rise, but at a time when we are looking at inflation moderating, how are you looking at the correlation between these two factors and what is the outlook when it comes to residential in particular?
Anuj Puri: The residential market continues to surprise us. It is at a 15-year high and it does continue to remain very strong. The good thing is that we are not seeing abnormal price rise within the residential real estate market. And I think after a very-very long time I have discovered that the developers have been extremely mindful of bringing in more cash flows and deleveraging their position rather than continuously increasing the prices and somewhere hurt the sort of sales of their residential. So, clearly, we are seeing between 6% to 10% price rise, but that is perhaps in line with the inflation.

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Clearly within the residential, we are seeing luxury doing exceptionally well, affordable unfortunately not doing as well and there is not that much supply that is coming in. But cities like MMR, Mumbai, Bangalore, NCR really leading the pack. Having said that, there are a number of tier II cities which are surprising us Lucknow, Bhubaneswar, Goa, it is surprising that many of the listed developers are getting into these cities and doing phenomenal projects. Do you think a lot of the function of the pricing remain as it is or just a marginal uptick, at least in the Mumbai and the MMR region is because it is already priced to perfection and do you think it is that or is it also because a lot of new supply is coming into the market?
Anuj Puri: Combination of two or three factors. One is exactly what you said that maybe it is priced to where the market is. Second, I genuinely feel that when you speak with the developers, they are just wanting to make sure that the sale momentum is not being disrupted by any price rise.

They are very-very clear that I want the financial closure of the project through the sales, not through debt and hence I will sell as quickly as possible, not necessarily increasing the price, at least to cover my cost of construction, which was not the case in the earlier rallies, that is the second one.

And the third is, I think the market has become a lot more mature, consolidated, well-governed, and there is a financial discipline. And in this consolidation, a lot of the sort of fragmented players who used to do this abnormal increase in the price have gone away.

These are largely now institutional players. They understand this game. They understand the volume game. Many of them are really the listed guys and hence they are largely playing the volume game as a result of it, price does not seem as exciting, where they do increase the prices that once the sales is sufficient to cover the construction cost for a project, then they know they are already home. Then, they start to increase the price because they know now they are playing in a safe zone.

What is it when it comes to the overall rental prices, are we seeing some sort of an overheating over here, is there a correction and more importantly what is the trend that you are observing in the long-term in some of the key micro markets? There seems to be that huge surge in supply when it comes to residential units, so what is the trend and even just that consumer buyer preference, does that continue to veer towards buying versus renting? Are you seeing a shift in trend?
Anuj Puri: It is after a very long time that we are seeing a rally where both the asset classes, the commercial and the residential doing well. For commercial market, we may see the best ever year that India has seen and as I said, residential, we are seeing a 15-year high.

So, it is interesting where we are in the real estate space, given that both these very large segments of the real estate market which usually are counter cyclical on many of the peaks that we have seen.

Residential behaves slightly different to commercial. Commercial globally behaving very differently, very negative sentiment globally, a billion square feet empty space in the US and hence overall people think is that, oh, it is bad to sort of buy offices and office is a bad word. But clearly in India, we are saying is that this will be the best ever year.

On the residential, two questions that you have asked is how the rentals, the rentals continue to remain sort of lacklustre in terms of the yields. It is between 2% to 3% yield on the residential. This is what it was pre-COVID. This is where we are during COVID.

So, whilst the rentals have gone up, the property prices have gone up in the same proportion, so the yields continue to remain sort of 2% to 3%.

In terms of buying versus rentals, clearly the millennials are starting to prefer to buy and that is where we are seeing the growth in the demand which previously they were renting.

I think in COVID, something has happened, either their parents or their girlfriend, boyfriend, or just the way that many of the landlords behaved with these tenants they have now decided that we are going to own a space, so roti, kapda aur makaan, that makaan has come back into priority.

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