Sunday, June 7, 2009

Property price, further rate cuts, cost of land and construction in Pune real estate market
- According to Sumit Arora of DS Kulkarni Developers


Still the profits are intact!

First, let me give you a good news. Please, don't worry. Builders in Pune are not in trouble. Profit margins of real estate developers are still intact. Actually, profits are "pretty good", says Sumit Arora, Vice President-Strategic Planning and Business Development, DS Kulkarni Developers.

To put the profitability of the real estate industry in the right perspective, Sumit Arora explains,"Though the market is not as great as it used to be probably a year-and-half back but still the margins of the industry are probably higher than any other industry so far."

Land and Construction cost in Pune:

According to Mr. Arora, average cost of construction is in the range of around Rs 900-1,000 depending upon the specifications and amenities one provides in Pune.

Land cost would be on an average say around Rs 250-300 per square feet on sellable basis.

Average selling (property) price in Pune is around Rs 2,500-2,800 per square feet. That is what Pune is selling for right now.

Builder's profit and further price reduction:

Mr. Sumit Arora gives important explanation about land and construction costs he has quoted in the above statement. He tells you to add "finance cost" and "administrative costs" into land and construction costs. Conclusion is "all put together the (profit) margins (of the builder) is in the range of around 40% only.

About property price reduction, Mr. Arora says, "I don’t see any scope of further price coming down and I believe customers have also realized that because of which the demand has picked up in the last two months...."

Hearty congratulations to all Pune property buyers for the "realizations" about property price.

Thanks to MoneyControl for verbatim transcript of the exclusive interview on CNBC-TV18.

Related Stories:

1) DSK Vasantotsav - May 9 & 10 - last 2 days left to book a ready possession flat at a discounted property rates in Hadapsar, Kondhwa & on Sinhagad Rd

2) DSK Vasantotsav - A daring effort for reducing real estate prices begins from today

3) DSK Vidyanagari, behind Pashankar Auto, Baner and DSK Janhavi, Bavdhan - last 2 days, 16TH & 17TH May, to get the benefit of launching property rate!

Can you see any scope for further price reduction in Pune real estate market?

First let me confess that i am speechless. I admire Mr. Arora for making this statement on National Business Channel. It also proved why CNBC-TV18 is considered as one of the best business channel.

Though, i can't utter a word, you can share your views in the comments. You can take Mr. Arora's figures, and visit above blogs and check the property rates, to see the "scope" for property price reduction in Pune real estate market!

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11 comments:

  1. Mr Karandeekar, don't be naive. What else do you expect from someone from the builder's camp?

    ReplyDelete
  2. Hello Vinod! Yes, you are right. Mr. Arora is quite close to the truth. Looks like that you have visited the related blogs and checked the current property rates! Thanks!

    ReplyDelete
  3. But still there is good enough scope to reduce further 15% from the profit margins. DSK would not be doomed if he makes 25% profit instead of 40% that he is making for all these years.

    ReplyDelete
  4. One more attempt to proclaim that real estate is picking up ! ! this time from some Sumit Arora,
    a classic case of "dispair in disguise"

    ReplyDelete
  5. As per Arora, builders are reaping very good profits even after reducing the rates.

    Now it is upto we buyers to think firmly and make sure that we dont put our hard earned money into builders' hands until rates come down to realistic level.

    The buying decision should start from "what is worth" than "what we earn".

    ReplyDelete
  6. 40% profit margin is indeed a very high margin. If buyers are not buying at current price/sq ft & builders are able to make 40% profit, there exists ample possibility of further price cuts. To decide whether a project is affordable/logically priced should be left to the buyer & not to the builder as builders like Rajiv Singh of DLF claims that Rs.60-70L houses can be termed affordable housing!!

    Anyways, nothing new in the interview. Same thing which builders keep chanting.

    ReplyDelete
  7. Hi Ravi,

    I visited your blog after a long time. Honestly, I stopped visiting your blog after you aggressively started advertising for Montvert. But, you seem to be back to customer's side again. So, I am back to read your blogs.

    Sumit, indeed, is very close to exposing real figures of cost.

    I saw many readers keep writing about huge profit margins builders are keeping into their business. Off late, I have observed that this is true for every industry and not only for Real Estate industry.

    Take any consumer goods industry, 40-50% Operating Margin is a norm. In Food Industry, the margins are way higher then 40-50%. Even take our friendly neighbourhood Vada Pav guy. He is working on 65-70% profit margin. Have you every tried understanding profit margin of a Tea Stall owner selling a cup of tea @5Rs? Take this, his cost per cup is Rs. 1.15, if he reuses cup. If he uses disposable cups, add 20 paise more to his cost. Now count his profit margin.

    Just imagine, the rice you are buying from Big Bazaar @42 per kg is being sold @2300 per 100 kg in Vashi wholesale market by Gujju traders. Over this, Kishor Biyani has a strategy to ask for additional 25% discount from his vendors (In the name of distribution and warehousing cost). So now, calculate profit margins.

    I am sure, many of your readers (businessmen) must be enjoying such heavy profit margins these days.

    The need of hour is to decide whether such higher profit margins are healthy for economy or society or not. The answer to this needs to be accepted by every citizen of this country - INCLUDING YOUR READERS.

    ReplyDelete
  8. Yes Parimal, quite right !
    I think now the Builders, media and banks have started taking turns to somehow project a picture that now is the right time to buy, further rate cuts are not possible and the like.
    They are making a mockery of themselves!

    ReplyDelete
  9. To Atul

    What a claver putup to support operating profits...I first must congratualte you to compare builders to tea stall person ..
    But you forgot one thing is even he makes 70% profit tea stall person can mearely make 400rs when he able to sell 100 cups of tea...you forgot that basic need of person is much more than that also they need to give police hafta or other expenses...Right now we will forget about that but to run a family you need 3-4k apart from your children expenses...so that profit is acceptable but think of 60% profit when your business is in billians....does you still accept 60% raise???? for IT industry initial people get 100% raise as their salary is 10/15k but later when they move up it reduces and at top they get 7-8% becuase they get lakh as salary...so its simpler thing as you increase your turnover you need to reduce that profit...otherwise every company will grow at 60% which is not possible look at our Growth rate which is 6.5/7.....I am no communist but i am against sqeezing people's money.

    ReplyDelete
  10. Cost of construction is hardly Rs. 800 per sq ft. Why pay 5-10 times more ?

    Use common sense, or get exploited by real estate lobby and online advertisements.

    ReplyDelete
  11. # Ref: "I visited your blog after a long time."

    - Thanks for visiting Atul! You are welcome. I missed you. Good, you are back. Hope to see you often.

    # Ref: " Honestly, I stopped visiting your blog after you aggressively started advertising for Mont Vert."

    - This is the problem of all good people like you. You don't fight with bad people like me. You just run away!

    Let me warn you. I have not stopped "advertising aggressively", as you say. How can i? This is my passion and profession. I am doing it for more than 20 years, very proudly.

    By saying "advertising Mont Vert", i assume, you mean Mont Vert's offers. Like -
    1) Rent Today Own Tomorrow
    2) Reducing the property rate of Tropez
    3) Reducing the infrastructure charges at Tropez

    I haven't stopped talking about these offers but i have started insisting that other builders should also start offering these schemes.

    If the builder is not offering, i tell the property buyers to demand for these offers.

    Why? Because:
    1) Good people like you don't come with any practical idea but run away!
    2) "Rent Today Own Tomorrow" i believe is the practical solution to book a flat when you are not sure about your job in the near future.

    At the same time, it offers you some compensation against the delayed possession.

    3) Reducing the property rates publicly, officially, is good for the property buyer. Even the reduction is small. Because property buyer who don't have negotiation skills can also get the benefit of the rate cut.

    In fact, anything related to property rates done "officially" "up front" is good, because it brings transparency to property buying.

    So, i am going to promote this type of efforts done by any builder.

    4) Infrastructure charges, parking charges, club membership, amenities charges, pipe gas connection charges, floor rise and all are only bifurcations of the basic property rate. Shown separately to present low property rates.

    When we talk about property rates, we only discuss Per sq.ft. rate based on the saleable area. Means we talk about only one portion of the property rate.

    Here, this builder, Mon Vert reduced the rates which we never complained about or discussed while talking about high property rates.

    This offer shows that while negotiating property rates every property buyer should negotiate these charges too.

    When one builder does something it sets the trend which other builders follow. I believe that i should "aggressively promote" these initiatives which are beneficial for the property buyers.

    Atul, I am planning to keep on "aggressively promoting" the practices which are good for the property buyers.

    In this process the particular builder who came up with that idea is going to get more mileage. Obviously. I think, the builder deserves it. This is the way you should reward good deeds and encourage other builders to follow.

    When someone like you can't put up with this "advertising", only shows that you haven't understood the "reason" and don't know "how to find the way in real world."


    # Ref: "But, you seem to be back to customer's side again."

    I am not back. I was always here. I am going to be here only. I am doing it voluntarily. On my own. Because, i am real estate salesman. As a good salesman, i value my customers.

    Problem is you expect me to agree to unrealistic expectations and ideas. When i don't, you think, i am not on customers' side.

    Be practical. I have come across many people who lost the opportunity because they didn't understand how the real world works.

    You must have realized that i didn't like you comment at all. But i am dealing with you. Though, i didn't agree with what you say, I let it publish and I took time to explain my side. Why? Because, i value your opinion. Because, i am on your side.

    ReplyDelete