Brigade Group, one of the prominent developers in south India, expects residential real estate prices to go up in 2021 due to high inflation and as demand rebounds post the COVID-19 pandemic.
The real estate industry in India had taken a big knock after demonetisation in 2016, followed up by the implementation of RERA (Real Estate Regulation and Development Act) and the Goods and Services Tax. Just as it had begun to recover in 2019, COVID-19 hit hard. In this backdrop, prices have either fallen in many markets or have been flat.
Now, as the pandemic has forced people to work from home and increased the need for social distancing, housing demand has begun to recover, M.R. Jaishankar, the chairman and managing director of Brigade Enterprises told THE WEEK in an interview.
“Slowly, but steadily things are getting back to normalcy. In 2021, I expect prices to go up a bit. When the inflation is low around 2-3 per cent, prices don’t generally go up much. Right now inflation is around 6-7 per cent, so prices are definitely bound to go up,” he said.
In the April-June quarter, hit hard by the lockdown, Brigade’s business fell 60 per cent, but over July-October, it had recovered to the level of business it did in the same period a year ago in the residential segment, said Jaishankar, adding that overall, the housing industry had seen a 60-65 per cent recovery.
In the quarter ended September, Brigade had achieved pre-sales of 1 million square feet and sales value was up 9 per cent from a year ago at Rs 576 crore.
Brigade is currently developing 32 projects in various locations. Jaishankar expects consolidation in the industry, with several small developers hit hard by COVID-19 unable to finish projects and some even shutting shop and people also preferring to buy homes in projects of larger prominent developers.
“There is a certain amount of consolidation in the real estate sector, A developer may be taking over the project of B developer who is unable to complete. The other kind of consolidation is that there is movement of business from X developer to Y, if the latter is considered to have a better track record in terms of meeting deadlines, trust, quality, etc, and who are adequately funded. We are seeing a shift from smaller developers to bigger established brands, that is for certain,” he said.
Even as there seems to be a recovery in the residential side, there is still uncertainty on the commercial side, especially in hospitality and retail segments. Brigade already has eight operating hotels and is developing four more. The hospitality business has been particularly hit hard by COVID-19 and that has prompted the company to go slow on the four under-construction hotels.
“We are going slow on the completion of the four hotels under construction and increasing our focus in the residential business,” said Jaishankar.
There has also been a lot of “cost optimisation” in the hospitality and retail sector, he added.
“In hospitality, which is very staff intensive, staff rationalisation has happened in a big way. It is the same case with F&B operators and malls. Wherever there was excessive flab, it has been cut. Close monitoring the business and processes, cost of doing business is being closely monitored and wasteful expenditure has been reduced,” he said.
He feels the government could have done more in terms of supporting the real estate industry through the pandemic. The Maharashtra government reduced stamp duty on new property deals. In Karnataka, stamp duty has been reduced on homes priced between Rs 20 lakh to Rs 35 lakh. Jaishankar feels the government could have, for instance, reduced GST for a certain period. He also felt that the 28 per cent GST levied on cement, a key ingredient in the construction industry, made no sense.
“The government has not done enough. There is a lot of lip sympathy. But that has not been converted into action, with a few exceptions.”
Currently, 70 per cent of Brigade’s real estate business comes from Bengaluru, while the rest is from Chennai, Hyderabad and Mysuru. Jaishankar said the company was looking to increase its focus on Chennai and Hyderabad. In 2018, Brigade ventured into GIFT City in Gujarat, with the Brigade International Finance Centre and a five star hotel. However, the company has no plans to expand to other markets and will essentially maintain a focus on the four southern cities.
“Real estate is a region-specific business and to expand in all parts of the country is not an easy thing. We interact with local governments in a big way. There are multiplicity of rules within a city. When you operate in many cities, it is essential to be on top of all the rules and regulations in each market we operate in,” said Jaishankar.
Demand for office space has also slowed in the wake of the pandemic as most companies, barring those providing essential services, adopted a work from home policy. However, Jaishankar says the current slowdown is an aberration and expects demand, especially in the information technology sector, to remain strong over the next few years.
“Opportunities for growth of Indian IT sector are huge. Various projections state that India’s IT sector size, which is currently $180-$190 billion per annum is likely to go to $350 billion by 2025-26. So, even if work from home becomes a permanent feature for 25-30 per cent of the staff, considering the huge size of increase in business in the next five years, demand for office space will also go up from 2021,” said Jaishankar.
