The Hindu Business Line : Bangalore sees price spike

Developers feel that the price hike is relatively small and are passing on to the end-user only a small portion of the increased cost of construction.

Developers in Bangalore decided to increase the rates of all projects by Rs 75-500 per sq.ft, depending on the stages of construction of various projects, last week.

This translates into 3-8 per cent of the present sale rate.

According to Mr A. Balakrishna Hegde, President, CREDAI, Karnataka, developers are forced to hike the prices because “it has now become impossible for us to sustain our old rates if we have to maintain quality standards.” The price hike is a result of a 20-30 per cent increase in construction costs, due to a “steep increase” in the costs of land, construction materials, labour and other costs. Besides, the 1 per cent labour cess is an added burden on developers, he says.

“Another major hindrance has been the enormous delay in obtaining the various sanctions of plans, which means the investment on land keeps incurring interest during the time lag, thereby hiking the project cost.”

Relatively small hike

How will all this impact the end-user? Developers feel that this price hike is a relatively small increase. “What we are passing on to the end-user is only a small portion of the increased cost of construction,” says Mr Hegde. This decision, maintain the developers, will not influence the buying decision of consumers much. “Those who’ve made up their mind to buy a flat or a house, in my opinion, will still go ahead and do so,” says Mr Arif Vakil, Director, Vakil Housing Development Corporation.

However, Mr Anurag Mathur, Joint Managing Director, India, of real-estate services firm Cushman & Wakefield, , feels the decision will have an impact on the end-user/investor market. An increase in price means they would have to shell out more.

The impact

The mid-market segment (Rs 50-75 lakh) is where there is a lot of demand as far as Bangalore is concerned, and for buyers in this category spending a few additional lakhs wouldn’t be so much of an issue, developers say. “It won’t affect the luxury or mid-market segment,” they claim. Mr Vakil feels the hike is too marginal to have any major impact on the demand. “Maybe people will opt for smaller apartments, but there will not be a drop in demand,” developers say. Besides a few additional lakhs for the apartments, consumers will also have to bear associated costs such as registration and stamp duty, which are dependent on the price of property/building.

Considering that the hike is being adopted by CREDAI, which has as its members most of the city developers, prices are expected to rise across the board in the primary as well as secondary sale market, says Mr Mathur. While affordable or mid-range housing will see sustained demand, the price hike may prompt other buyers to adopt a wait-and-watch approach.

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