News: Godrej, DLF and Oberoi raise home prices on strong demand, input cost hike-14-03-2022
Top developers including Godrej, DLF, Sobha, Oberoi, Lodha, and Mahindra have increased prices quarter on quarter, an analysis of their earning calls after their third quarter results showed. They claimed the price hike has not impacted sales.
Listed real estate developers have increased prices of residential units by up to 10% on the back of strong demand and a substantial increase in raw material prices.
Top developers including Godrej, DLF, Sobha, Oberoi, Lodha, and Mahindra have increased prices quarter on quarter, an analysis of their earning calls after their third quarter results showed.
They claimed the price hike has not impacted sales. “We have hiked prices across projects and in most of the geographies,” Godrej properties managing director and CEO Mohit Malhotra had said during the third quarter analysts call last month. “Most of these price hikes were taken to hedge against cost inflation, which has already happened. There was a very large amount of cost inflation that happened last year.”
According to JLL India, construction costs for existing projects increased by 9% between January 2020 and December 2021, while overall costs for new projects have gone up by 13%. According to ICICI Securities, single-digit price hikes are sustainable and healthy as they protect margins, encourage developers to launch new projects, and give confidence to buyers to purchase a new home. “We have a discipline of increasing prices by 1.5% to 2% every quarter across our portfolio,” said Arvind Subramanian, MD and chief executive officer of Mahindra Lifespaces. “This gives early buyers confidence in their choice. The sharp escalation in the cost of almost all building materials, including steel, cement, copper, plastics, and aluminium, over the past year has resulted in an upwards of 10% increase in the cost of construction. To offset this, we have further increased prices by another 3– 4%.” DLF has also been raising prices across segments. “With increasing volumes and well calibrated price hikes, we expect further margin expansion for our projects,” the company said. During the Q3 earnings call, DLF officials had said judicious price increases in line with market acceptability had increased the sales potential to Rs 47,000 crore with value enhancement of 17% driven by price growth.
Another developer, Sobha said it is selectively increasing prices 2-3% on a quarter-on-quarter basis in some of its projects to offset increases in input costs and to benefit from growing demand. “There has been a rise in input costs in the same quarter; however, at Sobha we were able to hike prices across various projects,” J C Sharma, vice chairman and managing director of Sobha said during the Q3 investor call last month. “We have been communicating since the last two quarters or so that discounts and the price reduction are over and we have started selectively taking the price increase.” The Indian residential real estate market has undergone consolidation, with the market share of larger, organised developers having grown to 25% in FY21 of residential sales value compared to 11% in FY17. Lodha Group said that for the first nine months, prices have grown on average by about 5% across the portfolio, and in certain parts of the business they have even been higher at 8% to 9% growth. “For a full year we expect the portfolio to have a price growth in the range of about 6% which we believe will lead to demand continuing to strengthen because as prices move up at a moderate pace, the desire for home ownership gets expedited and we start seeing and have started seeing better conversion levels,” Abhishek Lodha, MD and CEO of Lodha Group, had said during the investors call.
As per Anarock data, residential projects of listed developers have witnessed maximum price appreciation in the range of 5-12% during the period of Q3FY20 to Q3FY22. “As prices continue to rise, there will come a point where developers will be constrained to pass on these increases by raising prices,” said Kamal Singal, MD and CEO of Arvind SmartSpaces Ltd. “As input costs continue to rise, we expect that home prices will be on an upward trajectory in the near future.” As per the management of these companies, more price hikes are inevitable with significant increases in land acquisition expenses, noteworthy employee/labours salary gains, and higher input cost pressure.
