Lucknow's Small Builders Grapple with Rising Costs and Slowing Demand
A considerable number of small-scale builders based in Lucknow are encountering financial difficulties due to the escalating inflation rates and the increasing interest rates imposed by banks. This predicament follows a period of significant real estate growth in the city, which attracted numerous builders and prompted substantial investments in projects.
However, the recent economic downturn has compelled these builders to sell their projects at reduced prices, with many even shelving future developments. "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 %," stated Nagendra Pandey of Landmark Constructions.
Escalating Construction Costs Compound Builders' Concerns
The recent surge in raw material costs has further exacerbated the anxieties of builders. "The average cost of construction has increased by almost 30%. The average cost of construction for the built-up area, which used to be Rs 600-700 per square feet, has gone up to Rs 800-1,000 per square feet," Pandey explained. He further elaborated on the fluctuating market dynamics, noting, "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."
Pandey detailed the sharp increase in raw material prices: "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."
Small Builders Face the Brunt of the Downturn
Lucknow has approximately 500 small builders, including those who construct small, single-room apartments and shops. Rahul Agarwal, Director of Tirath Housing, articulated the challenges they face: "The cost has gone up by approximately 30%. We cannot cut on the selling price, and hence the customers are also shunning away from us. This is a situation of crunch."
It is worth noting that land prices in Lucknow have doubled in the past couple of years. The unprecedented demand for newly constructed residential properties has driven up property values in Lucknow's suburban areas by 20-30% in the last year alone. For instance, land prices in areas like Gomti Nagar have escalated from Rs 600-700 per square foot to Rs 1,500 per square foot. Other desirable locations in Lucknow, including Mahanagar, Jankipuram, and Aliganj, have also experienced similar price increases.
Impact on National Real Estate Players
Even prominent national real estate companies with a significant presence in Lucknow, such as Ansal API, Parsvnath, and Omaxe, are encountering similar challenges. However, their impact is less severe compared to their smaller counterparts. A property dealer commented, "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."
An associate broker for some of these top real estate players observed: "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." Ramesh Yadava, Executive Director (Operations) of Ansal API, acknowledged the prevailing economic conditions while maintaining a sense of optimism: "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."
Despite varying degrees of impact, the recent inflationary trends have dampened the enthusiasm of both builders and potential homebuyers in Lucknow. This has led many customers to postpone their flat booking plans, further exacerbating the challenges faced by builders.