Competion between organised vs unorganised builders
The imminent entry of big-ticket builders from the metros, flush with IPO money, has drawn a mixed response from the builders in Coimbatore about what future held for the existing players. The rising interest rates, the galloping cost of building materials, the shortage of skilled labour and the increasing labour costs also have put them on a spot of bother.With around 2,000 apartments under construction now in the city by the organised builders and an estimated equal number of apartments and individual houses under construction by unorganised builders and property owners, the city is in the grip of an unprecedented construction wave, despite the soaring land price. Builders are optimistic because the IT parks are on the threshold of commencing construction work and the manufacturing sector, the backbone of Coimbatore's economy, is witnessing a historic boom.Speaking to Business Line, Mr Rajesh B.Lund, Managing Director, and Mr Madan Lund, Director, Srivari Infrastructure Pvt Ltd, Coimbatore, said the entry of builders with deep pockets and fresh with their IPO money, was not a threat to the established builders in the city and real estate business was not like textile business where bigger players could wipe out smaller ones.
The new developers would have to purchase land like any other builder. Within the city, only small pieces of land were available and if they want to sustain their business they would require larger parcels of land.It was not as if the large builders would price-out competitors because there was a base cost for land and for construction, below which they could not sell. They might only hold on to their possession during recession or price correction.In Coimbatore, builders adopt a bottom-up approach, basing the apartment/housing cost on the basis of land price."There cannot be too much of a disparity" in prices between the outside and local players and in terms of facilities and quality of construction, "Coimbatore builders are equal to anyone in India'. The prices would not come down but the buyers would have a larger choice to make.
Mr Rajesh said while the local builders would not be able to "beat them", they would have their own "niche market".He was confident that because of the emerging employment opportunities in the city due to the entry of the IT companies and in view of the strong performance of the basic engineering industry which is set to get a further boost due to the entry of engineering behemoths such as L&T and Suzlon, the real estate boom was sustainable. He said Elcot would be starting work on its IT park in August and a few IT companies had approached his own company for creating the requisite infrastructure and "in the long term, definitely the real estate sector in Coimbatore looks promising".
Asked whether the increase in interest rates and property prices had led to a slow down in demand, Mr Madan said while the demand was there, some people tended to `postpone' their decision, waiting for the interest rates to come down.Mr V.S. Venkataraman, Managing Director and Mr V. Subramanian, Executive Director, Ramani Realtors Private Ltd, Coimbatore, said they have been able to sell their projects within six months of announcing them. Mr Subramanian said the builders have been hit by the spike in short-term interest rates - from around 11 per cent earlier to 14.5 per cent now. The steep increase in material cost-cement, steel, sand etc has been accompanied by the shortage in availability of skilled labour and the escalating labour cost has further strained the builders' margins.
He was apprehensive over the impact of the entry of big real estate companies to Coimbatore and flush with the IPO money, these companies would be able to outbid the local promoters for prime plots in the city. They also would be able to offer more competitive rates for their apartment projects that the local builders would find tough to match.
