House prices likely to increase by 5-6% in the next 45 days: Vishal Gupta, MD, Ashiana Housing

Vishal Gupta, Managing Director, Ashiana Housing, talks about the demand situation & trend, rising raw material prices, its impact on the business, price hike plans, project pipelines and CapEx among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: What is the demand situation and trends in the market? How upbeat and bullish you are for FY23?

A: It is such that such a positive sentiment and movement is visible in the real estate sector after a long time. A good rise in sales has been seen in the last two years. Last year, we closed with a booked area of around 560 crore square feet and are extremely bullish for the coming year. All of our markets are performing well may it be Gurugram, Bhiwadi, Jaipur, Jodhpur, Jamshedpur and Chennai. Good traction is also visible in senior living at both places, namely Chennai and Bhiwadi. Looking at the upcoming launches, the company has set the year's booking target at Rs 1,100 crore and is expecting that it will be achieved. Having an eye at a combination of three, the positivity in the company markets support and a portfolio of the right products and right pricing, we are looking at a spectacular year ahead.

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Q: The biggest problem that real estate developers are facing is an increase in raw material costs. Many have told the government that they will have to stop the project if raw material cost is not reduced. What is the on-ground situation at present is the raw material prices are putting pressure on the companies and there is a need to pass on it to the consumers and does the market have an appetite to have a price hike?

A: You hit the nail on the head there is huge price pressure. The second point I would like to bring up is that sales are excellent, but the margin pressure will remain for the real estate companies. The kind of price to income ratio is there suggests that the market can easily absorb a 10-15% increase in sale value. But in light of an expected increase in the land value, construction cost and labour cost (in the coming future), this 15% would not be enough to cover these costs. So, that is going to be an area where even the real estate industry will have to think out of the box about what should be done. We were getting steel from China at very cheap rates, but the government imposed an anti-dumping duty on it to support the steel sector. Now, we expect that the government will do something to bring down the prices of the real estate commodities due to which the real estate prices are increasing. The government should take some active steps and try to bring these prices to realistic levels.

Q: What is happening with prices and what is the pricing outlook and do you think that there is an appetite to hike the prices as the demand is good, if yes, are the companies looking in this direction and what would be its quantum and what could be the timelines?

A: Last year, we increased our prices by 7-8% over the year in small tranches and we didn't feel any pushback in it from the market. Even the market has an understanding of the fact that the input cost has risen a lot. The customer is at a risk by purchasing at very cheap prices, especially for the under-construction properties because if the developers' margins will squeeze then definitely it will bring difficulties in developing the projects and also delay in building those projects. So, I think, the customer is realising it and are ready to pay the right price. The best thing is that over the year his affordability has increased and he can absorb the prices.

Q: But there can be price hikes in the recent future, if yes, what would be its quantum?

A: We should be looking at anywhere between a 10-15% hike going forward. The industry has seen an average 30% increase in construction cost and construction component cost is anywhere between 50-60% of the sale value.

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Q: By when it is likely to happen and will it happen in a go or tranches or can be the first round of increase after which the company will have to look further?

A: No one will try to take a risk at a go as I mentioned earlier that we increased our prices last year by 6-7%. But the whole industry will have to take a little big increase at once, which will be followed by small increases. I think it is about to happen. The industry has gone through a very bad patch of five to seven years, so, the risk-taking capacity is slightly low among people when it comes to increasing the prices. But, the way the cost of construction is surging and the land cost is increasing which will be combined with an expected increase in labour cost, I don't think that the industry will be left with any choice.

Q: What could be the timelines for it?

A: A 5-7% increase can be seen in the next 45 days which will be followed by small increases. I would say that in the next six months you will see the real estate re-valued by 10-15% at least. This 15% is simply to cover the cost, if I have to get a similar percentage on the capital deployed then we will have to increase the prices, further, or else, the 

the balance sheet will remain under a pressure.

Q: Update us on the ongoing potentials in terms of revenue potentials and inventory levels among others? Also, how the ongoing project pipeline is looking and where will your projects come this year?

A: The biggest project launch will happen in Sector 93, Gurugram, where kid-centric homes will be launched. The project will have 1,200 flats and the sale value for the project will stand between Rs 1,200 crore and 1,300 crores. In addition, we are also launching a new senior living project in Bhiwadi. Two projects each are planned in Pune, Chennai and Jaipur and one each in Jamshedpur. We can expect some delays in approvals in some projects, so, we are expecting a minimum of five launches in a year and if we can organise ourselves properly then we may launch seven projects.

Q: How much CapEx has been lined up for this year and what kind of investments will happen on the projects you have named? What is the completion timeline for these projects?

A: Outside of the land, we will be spending around Rs 450 crore on just construction activity and we are expecting to spend another Rs 100-200 crore on the purchase of new lands.

Q: Can you tell us their geographical locations?

A: They are in Jaipur, Pune and Jamshedpur. We need to get more land in these geographies.

Q: Your company has been reporting losses for the last two quarters of which a loss of Rs 3.8 crore in Q3FY22 and Rs 5.7 crore in Q2FY22. When will the company come into profit?

A: We will see good profits from this financial year (FY23). As far as Ashiana Housing is concerned, our balance sheet is based on possession. The last two years have been good, however, the 3 to 4 years before that were very bad for the company. Their reflection is now coming on the balance sheet. But the last two years have been quite good and its reflection will become visible this year and we should see some good numbers for the company.