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Rising inflation hits Lucknow realty

July 25, 2008 10:23 IST
A number of Lucknow-based small builders are facing crunch due to the rise in inflation and increase in the interest rate by banks.

After the real estate boom the city witnessed, a number of such builders joined the bandwagon. Moreover, they invested heavily in the projects.

However, due to the recent downturn, they are forced to sell of their projects at lower costs. Many of them have shelved their future projects also.

"The current slowdown in the realty sector, coupled with high interest rates and increased cost of construction, has affected the industry immensely. The depreciation has been to the tune of 25-30 per cent," Nagendra Pandey of Landmark Constructions told Business Standard.

"The response has been extremely dull," added Manish from Bhalla Firms Private Ltd.  The recent hike in the raw material cost has added to the worry of the builders.

"The average cost of construction has increased by almost 30 per cent. The average cost of construction for the build up area, which used to be Rs 600- 700 per square feet, has gone up to Rs 800- 1,000 per square feet," added Pandey.

"The city has witnessed a huge property demand in the last 2-3 years, however, for the last 6 months it's experiencing a downfall," he said.

"The raw material cost has seen an unexpected increase. Steel prices have gone from Rs 3,000 per quintal to Rs. 5,000 per quintal. Similarly, mortar, which cost Rs 18 per square feet, is now costing Rs 35 per square feet," Pandey said.

There are around 500 small builders in the city. These include those builders also who build small one-room flats and shops.

"The cost has gone up by approximately 30 per cent. We cannot cut on the selling price and hence the customers are also shunning away from us. This is a situation of crunch," said Tirath Housing Director Rahul Agarwal.

It is to be noted that the cost of land has also doubled in the city in the last couple of years. Moreover, owing to unprecedented demand for newly-constructed residential properties, property values in Lucknow sub-urban areas have shot up by 20-30 per cent in the last one year.

The cost of land in a locality like Gomti Nagar has gone up to Rs 1,500 per square foot from Rs 600-700 per square foot.

The other favourite spots in the city include Mahanagar, Jankipuram and Aliganj. The national players like Ansal API, Parsvnath, Omaxe etc, which have significant presence in Lucknow, are also experiencing similar adversity.

"Big players plan their projects taking into account future prices and the cost of production. They have also been affected but not as badly as smaller builders," said a property dealer.

"The fact is that the business is not going great although the top players are not affected much because they have entirely different category to serve and also have diversified products," An associate broker for some top reak estate players said.

"All products are moving at an average level and nothing drastically has happened as far as our company is concerned. Inflation cannot be ignored and we have to cope with it no matter what," Ansal API Executive Director (Operations) Ramesh Yadava said.

However, recent inflationary trend has dampened the spirits of both the builders and customers. So much so, that the customers have put on hold their plans for booking of the flats affecting the builders further.

Source: