Property developers give up profit margins for sales volume: Analysts

Margins in residential projects have come down from 20-30 per cent last year to 8 to 10 per cent in today's market

Even as residential sales have picked up in the July-September quarter, compared to the previous quarters of the calendar year, property developers seem to be sacrificing margins for better volumes.

The third quarter of the calendar year 2020 saw home sale values increase by more than double to around Rs 29,731 crore, from Rs 12,694 crore in the preceding quarter. 

The first quarter of 2020 saw home sales of about Rs 46,306 crore, Anarock Property Consultants said.

“Developer margins have a taken a big hit and are at their lowest. For customers, this is the best time to buy as prices have reached the bottom and will only move up,” said Shrikanth Joshi, chief executive at L&T Realty.

Margins in residential projects have come down from 20-30 per cent last year to 8-10 per cent in today’s market. “From a developer’s standpoint, many players are content with a profit margin of 8-10 per cent. Earlier, they could look forward to a profit margin of more than 30 per cent,” said Anuj Puri, chairman of Anarock.

Also, today sales are majorly driven by the affordable and mid-segments where homes are priced within Rs 80 lakh, for which profit margins are significantly lower than in the luxury segment, Puri said. 

Bengaluru-based Puravankara has been juidicious in pricing projects so as to maintain margins and push up volumes, said Ashish R Puravankara, managing director (MD), Puravankara.

However, bigger developers like Vikas Oberoi, chairman of Oberoi Realty, said the company had been able to increase volume without reducing prices. “There is a huge pent-up demand and this is precisely the reason why demand has gone up. Also, people realise that fresh development due to Covid is going to take longer. Hence, ready apartments are going to sell at a premium and faster,” said Oberoi.

Niranjan Hiranandani, MD of Hiranandani Communities, said except for overleveraged players, not many have sacrificed margins.

Oberoi added, “There is nothing about big players or small players. Whoever has performed well in the past will continue to do well irrespective of the size of balance sheet. Of course, bigger players will have an edge.”

Kamal Khetan, chairman of Sunteck Realty, said every buyout or takeover proposal is being considered from a viability perspective by large developers.