After yesterday's stimulus package announcement for the Real Esate companies , I read an articke in the Economic Times about real estate companies claiming that the stimulus package was not enough and that they need more.
CEO # 1 says : "They could have done more …. should have cut the steel prices mores …..."
CEO # 2 says: "Package should be annouced for loans of upto 30 lakhs and not 20 lakhs , this is not enough."
This is really juvenile behavior on the part of real estate companies. They are crying hoarse about the inadequate sops from the government, while they have done little to stimulate the uptake in real estate via a price reduction.
I am unable to understand the reason why developers are not willing to cut prices (at least by 15-20 percent). While car companies and every other company is offering discounts to sell their stocks, real estate companies are sitting pretty on their profit margins.
As per my own experience of building a house in Bangalore and also as per the contractor (who also builds many apartments on contract basis) the average cost of constructing a quality apartment is around Rs 1000 to Rs 1200 per sq ft. If you include the cost of land then it would come up to Rs 1500-1700 per sq ft.
But what's the retail price of an apartment in Bangalore? It ranges between Rs 2300 (at the lower end ) to Rs 3200 (medium) to Rs 4000 (higher end). These real estate guys are making dream margins on each project (even IT companies don't make so much).
However, on the balance sheets of real estate companies the profit margins are shown lower simply because all profits made during the bull run were invested in creating more and more land banks.
Given all these I don't see a reason why one should give bailout packages, in terms of cheaper loans to the real estate companies. I believe that the real estate companies should now pay the price for their reckless expansion.
My humble request to the PM and FM is not to give any more sops to real estate companies until they cut prices by 20-30 percent.
Write to Avinash at email@example.com