Realty developers surge residential units prices by up to 10%

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.

Leading developers including Godrej Group, DLF Ltd, Sobha Ltd, Oberoi Group, Lodha Group, and Mahindra Group have increased prices quarter on quarter (QoQ), an analysis of their earning calls after their third-quarter results revealed. They claimed the price increase has not affected sales.

They have increased costs across projects and in most of the geographies, Godrej properties managing director and CEO Mohit Malhotra told the media during the third quarter (Q3) analysts call last month. Most of these cost increases were taken to hedge against cost inflation, which has already happened. There was a very large amount of cost inflation that happened in 2021.

As per JLL India, development costs for existing projects grew by 9% between January 2020 and December 2021, while overall prices for new projects have increased by 13%. As per ICICI Securities, single-digit price hikes are sustainable and healthy as they protect margins, promote developers to roll out new projects and give confidence to buyers to buy a new house. They have a discipline of growing costs by 1.5% to 2% every quarter across their portfolio, as per Arvind Subramanian, MD and chief executive officer of Mahindra Lifespaces. It provides early buyers confidence in their choice.

The sharp increase in the price of almost all building materials, including steel, cement, copper, plastics, and aluminium, over the last year has led to an upwards of 10% increase in the construction cost. To balance this, they have further raised costs by another 3% to 4%. DLF has additionally been increasing costs across segments. With surging volumes and well-calibrated price increase, they anticipate further margin growth for their projects.

During the Q3 earnings call, DLF officials told the media that judicious price costs in line with market acceptability had improved the sales potential to Rs 47,000 crore with value growth of 17% driven by cost increase.

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