Mid-Size Property Developers Aim To Ride India’s Real Estate Boom

Mid-sized real estate developers expect the “boom” in India’s real estate market to continue for the next few years as the nation recovers from the disruptions caused by the Covid-19 pandemic.

India, like many countries across the globe, witnessed a pandemic property boom as lower interest rates prompted people to buy homes, resulting in a surge in housing sales volumes. Developers and analysts hope this optimism to stay on pent-up demand for residential units and growing household incomes even as the central bank’s tightening of the monetary policy to tame inflation has made home loans costlier.

This is “the beginning of a long booming cycle for the real estate sector for the next five years”, where demand will steadily rise for the next two-three years, Parth Chhajer, promoter of Arihant Superstructures Ltd., told BQ Prime’s Niraj Shah.

Manan Shah, managing director at Man Infraconstruction Ltd., also expects the surge to continue for a couple of years.

According to Dhaval Ajmera, director at Ajmera Realty & Infra, the “resilience and growth potential of the Indian economy will sustain the favourable real estate cycle for seven-eight years”.

India’s real estate sector—among the top contributors to the nation’s economic growth—is emerging from a prolonged slump due to reasons ranging from cash ban and a stricter housing law to an NBFC liquidity crisis that led to a pileup of unsold apartments. The recovery, according to Knight Frank, is aided by homebuyers’ need to upgrade primary lifestyle and comparatively low home prices to the pre-pandemic levels.

Housing sales, the property consultant said, rose 60% annually in January-June 2022 across eight major cities at 1,58,705 units, the highest half-yearly demand in nine years.

Man Infraconstruction, Shah said, has already sold out 80-90% in most of its ongoing projects even after withdrawal of stamp duty relaxations. The company, he said, has sold 1.05 lakh square feet of real estate worth Rs 281 crore in the three months to June. The developer has 4.5 million square feet of ongoing residential projects that will be executed over the next five years, diversified across asset classes—affordable housing, mid-income, and HNI.

“We’ve acquired a lot of other projects, but revenue recognition is difficult when the projects are in initial stage. We would be growing in a stable fashion. I wouldn’t say there would be an extreme surge in FY23, but yes, we would beat the FY22 numbers,” Shah said.

The surge in revenue recognition would become evident in 2024 and 2025 as these projects approach completion and new projects are added, he said, adding the impact of higher input costs on operational metrics has already been accounted for.

Arihant Superstructures is aiming for a 50% annualised growth rate across verticals by FY25 compared with 37% CAGR in the last two years, Chhajer said.

“We’ll see a good shape-up in sales. Last financial year we closed at around Rs 764-crore [sales]. This financial year we’re targeting close to Rs 1,100 crore of sales,” he said. “We can move up to Rs 1,300-1,400 crore by FY24-FY25 in terms of annual sales figures. The company has the products which can cater to masses… helping us reach this milestone.”

According to Chhajer, the company has acquired and fully paid-up parcels spanning 13 million square feet. “For the next six years, the land parcels are completely bought up, plans are approved for majority of them. For this cycle…we will procure the raw materials in one-and-a-half to two years.”

With projects across nine locations, the company’s looking to reach more micro markets with better profitability and easier project execution, Chhajer said.

“For growth capital, we would require raising some funds, but our internal cash flows are very strong. Today the company has debt only on three projects out of 18… and they (internal cash flows) are getting stronger day-by-day.”

Ajmera Realty had posted sales of Rs 450 crore for FY22, while sales for the first quarter of FY23 alone was at Rs 400 crore, its director said. “We are hoping this trend would continue in this entire year as well.”

While the September quarter this year may not fare as well as the June quarter, but it is sure to see better sales than the year-ago period, he said.

In coming days, ARIL is expecting around eight projects with a cumulative spread of three-four million square feet to add up to Rs 4,500 crore to its top line in the next three-four years. The developer is laying the groundwork for five times growth by FY25 with a two-pronged approach, Ajmera said. “The first is to launch projects on land parcels with the company. The second is to add asset-lite models which will include extending expertise to other developers and landowners.”

ARIL has 8 million square feet of upcoming and planner projects. It also has entered into TDAs for land parcels worth 18 million square feet in key micro-markets of Mumbai Metropolitan Region. Besides, it’s looking at developing 3-5 million square feet of commercial portfolio over the next seven-eight years, which can be taken the REIT way for a better valuation, Ajmera said.

Rate Hikes No Hiccup

The mid-sized developers do not expect the aggressive interest rate cycle to deter homebuyers.

Buying homes is a very emotional decision for Indians, said Ajmera. The significance of real estate as an investment was underlined during Covid, which led to investors moving to the sector from equities and gold.

Buyers, Shah said, will need some time to get accustomed to the new interest rates, but this will not see demand coming to a grinding halt.

Also, “If you see EMI versus rental, the former is being preferred. Home loans have gotten a lot cheaper. So, people are preferring to create their own assets, park their money into a space where the capital is not wiped off like it happens in the rental space,” Shah said.

According to Chhajer, “interest rates till 8-9% would not be a big dampener for the homebuyers because for them it is more important to buy a house today rather than wait for two-three years or speculate if the interest rates would come down. Majority of our homebuyers are first-time homebuyers”.

“Average age of homebuyers has also come down drastically in the last five-six years… They’re eligible for a 20-25 years’ tenure of home loan. Eligibility is not affected very largely because of the age of the homebuyer. It is one of the reasons that’ll keep driving affordable housing and mid-income housing demand for the four-five years,” Chhajer said.

Ajmera sees demand picking up this festive season, with developers coming up with attractive offers to lure buyers.