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Prices Will Rise In Coming Quarters: Boman Rustom Irani

Boman Rustom Irani, Chairman and Managing Director, Rustomjee Group, President Elect, CREDAI National as well as President, CREDAI MCHI talks to Ashish Sinha of BW Businessworld on the various industry and region specific challenges for developers, homebuyers and the overall housing business.

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How do you think the increased prices will affect homebuyers in India? The real estate market in India has been in a seven-year down cycle, which is now ending. How do you see the change affecting the industry? 
While the price increase has been a hot topic in the real estate sector for some time, developers are now raising project pricing as the cost of raw materials has surged dramatically. Raw material prices have risen significantly over the last three quarters, by 20 to 30 per cent, forcing fellow realtors to raise their prices. While the developers have majorly attempted to absorb most of the costs to add impetus to the buyer sentiment, industry forecasts indicate that prices will rise much more in the coming quarter and developers will eventually perforce have to pass on some of the burden. As a result, the government's continued assistance, which includes stamp duty reductions and historically low home loan rates, will help the industry maintain its strong growth. Even though raw material prices are a part of the cause for the price increase, it is also proportional to the growth in demand from buyers. Because of the introduction of digital technologies, the industry has remained resilient and constantly met the demands of buyers.

What are some of the items on your agenda as the newly elected president? 

The Confederation of Real Estate Developers' Associations (CREDAI) is committed to act as a catalyst and provider to serve the holistic development of the Mumbai Metropolitan Region (MMR) and of the industry. In 2022 we shall be focusing on our well-received, long-term initiative to maximise, modernise and revolutionise MMR. The apex body is committed to the success of our members, the positive influence of our industry and the vibrancy of our dynamic business arena. As we all know, CREDAI-MCHI is an apex body consisting of members from the real estate industry from the MMR. With a strong membership of 1,249 leading developers in the MMR, we are the only government recognised body for private sector developers in MMR and consistently working to make the industry more progressive and organised.

There was a sharp increase in housing demand last year due to stamp duty exemptions, low interest rates, and other offers. Did it help in reviving consumer confidence?  
With support from the government through its industry reviving initiatives, the buyer sentiment has significantly improved after the onset of the pandemic. The MMR saw the maximum revival in sales in 2021 with a rise of 93 per cent in registrations since 2019 and 71 per cent from 2020. Thane accounted for the highest number of registrations with a 42 per cent share. Moreover, initiatives such as reduction in stamp duty has provided a fillip to affordable and mid-segment housing of more than Rs 1 crore. As a result, property registrations in these segments rose 22 per cent in 2021, compared to 2019. Additionally, the awareness amongst buyers for owning a home than living in rented accommodations has helped improve the sentiment. Apart from that, members of CREDAI-MCHI have also upped the ante to cater to the evolving needs of the consumer. We have noticed an uptick in innovative designs in similar sized spaces to add areas for working from home and other needs. There is an increased awareness amongst homebuyers, and the customers understand the value of possessing their own home.  

With the easing of restrictions across states, site visits by homebuyers have significantly increased. Do you feel the industry’s digital transformation will continue to be a key driver of growth? 
There is no doubt that the digital-first approach is becoming more mainstream for both developers and homebuyers. The disruption caused by the Covid-19 pandemic has accelerated digitisation across sectors, including the real estate industry. Due to the pandemic's constraints, which caused customers to stay indoors, developers have had to turn to more imaginative digital solutions to maintain demand. AR sightseeing, online open houses, and virtual bookings have all become more prevalent. While just a handful of developers have used digital solutions so far, we expect to wider adoption of such methods this year, with smart contracts and unique virtual experiences for homebuyers. With the pandemic ebbing in the country, there may be resumption of on-site visits by homebuyers, but in the long run, digitisation will play a significant role in their home buying dream.

The luxury real estate segment has picked up pace since 2021. How do you see the trend panning out this year? 
The financial capital of the country, Mumbai, has witnessed a surge in new-age constructions of luxury apartment complexes in suburban areas as well, owing to the high-end developers stepping in. The added impetus through historically low interest rates on home loans, flexible payment options, better consumer awareness and supportive government policies has transformed the real estate domain not just in the state but across the country. Demand in luxury segment bounced back after several years. Sales in the luxury segment (upwards of Rs 3 crore) almost doubled in 2021, compared to 2019, accounting for the highest share in three years. With the proposal for introduction of a Central Bank Digital Currency (CBDC) and the growth in the cryptocurrencies market, there may be a rise in the buying capacity of homebuyers and will position real estate as an attractive option to invest. Moreover, after the onset of the pandemic, there has been a leap in interest from the uber-rich category of the society to invest in luxury homes and as the luxury market boom expands, we can only see this trend inflate in the coming years.  

The Budget didn't have much for homebuyers this year. As a developer and president of CREDAI-MCHI, how do you think the sales can be boosted to maintain the 2021 traction? 

We believe the Budget remains dedicated to boosting real estate transparency and simplicity of doing business. Some of the significant announcements for FY2022-23 including the allocation of Rs 48,000 crore for the affordable housing segment to build 80 lakh houses in rural and urban India, digitisation of land records, data centre infrastructure status, a 35.4 per cent rise in capital expenditure to Rs 7.5 lakh crore, with no increase in direct taxes, is intended to give the whole development process a boost.

Do you believe that sustainable real estate will become an option of choice in the years to follow? 
As the globe prepares to combat the effects of climate change, any effort to reduce environmental deterioration will help conserve our surroundings. Consumers have become increasingly concerned about their carbon footprint over the last few years. New-age buyers are cognisant of their lifestyle choices and strive for long-term sustainability.

As a result, developers are implementing various initiatives and green building practices including but not limited to solid waste management, water recycling, rainwater harvesting, use of renewable energy sources, efficient design that maximises natural ventilation, and ensuring adequate blue and green infrastructure in their properties. Minimising the use of non-renewable resources, including more eco-friendly, recyclable materials, aid in the sustainability of a project. While such techniques have long been the standard, 2022 is projected to see an increase in environment friendly building processes. With timely updates in equipment and effective use of modern tools in the construction industry, innovative projects with world-class standards can be created, further raising the Indian standards in the international market.

Given the current stock market crisis, do you think real estate is a better investment option for millennials than stocks? If so, why? 

Globally, even though there has been an expansive rollout of vaccinations across countries, the overarching message from the top 50 financial institutions across Wall Street suggests that growth will ease, returns would turn moderate and risks will abound in the stock market. Safe return on investments was one of the main reasons why investing in a home became one of the top priorities for Indian households for the previous generations and continues to hold significance in today’s time. Real estate has consistently performed well and garnered great returns for investors over the years. Even though there was a slight slump owing to the effects of the pandemic, the real estate sector has continued to be resilient overcoming the challenges posed, thereby further strengthening the industry growth chart. Given the recent rise in prices, returns are expected to grow manifold. Despite the challenges faced by the world and given the growth trajectory, we expect the industry to reap far greater returns in this financial year. Especially in the MMR region, we are expecting a further 7-8 per cent rise in prices over the year and that should improve the buying sentiment as people look for safer investment havens.

(Data sourced from CREDAI MCHI – Colliers – CRE MATRIX Report 2022) 

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Magazine 26 March 2022 Boman Rustom Irani credai