Good morning, ‘Given Russia’s leviathan role in global commodities, the cloud around the end of this conflict, and questions on how extreme shortages in energy, metals and the agricultural space will be resolved, we are convinced that the world could be sleepwalking into a recession’, says a recent MUFG Report.
While India races to house millions of people via its ambitious affordable housing programme, out-of-control construction material costs are making low-cost housing, a nightmare for the developer.
On the flip side, a price hike to balance increasing costs could spawn thousands of fence sitters overnight, watering down precious demand for housing.
There you go. We've successfully explained the phrase ‘Catch 22'.
🏃♀️🍎🥝
2022: Workspaces Are Flexible Again
A really really long time ago, which means two years back, the coworking office was buzzing with workers hailing from all levels and every industry.
The shared economy also ensured that coworking vibes, idea-sharing, people to people osmosis, and new accounts for businesses, all received a boost amid the walls of the coworking office.
And then, 2020 happened.
Recovering From The Pandemic
Fast-forward to the present day and coworking continues to witness a rise in demand as flexible spaces have become an increasing necessity.
Per reports, coworking operators leased over 55,000 seats in 2021, up from 36,000 in 2020, and leasing is expected to double in 2022.
The Shared Economy And FY23
🍏 This coming fiscal, coworking spaces will not just be critical to how companies operate, but coworking operators themselves will transform to fill in the blanks for a growing hybrid workforce.
🍎 Operators are expected to expand and service suburbs and Tier II, III towns so WFH employees have a physical workplace to come into to make connections with others.
🍏 An increasing number of commercial property owners are becoming confident that demand for flexible offices will continue to grow far after the pandemic has ended.
The Big Shift To Tier II
When the pandemic hit, most of the workforce transitioned to work-from-home positions, many of which were located in the suburbs and our smaller towns.
But months of working at home filled up workers with loneliness and distractions began impacting their ability to remain productive and focused.
Coworking spaces have taken note, and in 2022 operators are expanding services to cover suburbs and smaller towns so workers have a physical workplace to come into to make connections with others, while still benefiting from the perks of working near home.
Half A Cup Extra
🔖 If you want to know what stagflation looks like, check out the US housing market. The conditions that existed during the 1970's — high inflation and stagnant output — are happening already, illustrating the challenges ahead for consumers, real estate developers and the Federal Reserve.
🔖 The UAE’s newly announced federal corporate tax will be beneficial for the domestic real estate sector in the long run even though it could portend a marginal negative impact in the short term, says this report.
🔖 Developers’ body Credai-MCHI has written to the Maharashtra deputy chief minister and the revenue minister seeking a two-year deferment in the imposition of a 1% Metro Cess, which is intended to fund metro rail networks and other transportation infrastructure projects in the state.
Affordable Housing Is Feeling Construction Cost Heat
The way construction input costs are rising, the term affordable in affordable housing might require a revision pretty soon.
A Quick Background
As the pandemic raged through a good part of 2020-21, labour, transportation and logistics hurdles slammed the air brakes on real estate projects across the country.
While the labour is back at project sites, core construction materials like steel, cement, tiles and other fittings are much more expensive today than they were two years back, thanks to the Covid - Ukraine war tag team events.
Per top real estate developers, steel prices have skyrocketed 25% in the last one month, while cement prices are up by 15% in just the last 40-45 days. Also, there seems to be no respite in sight.
Affordable Housing Margins Narrowing
Just so you may know, affordable housing projects return a lower margin of 15-20% to the builder, while other housing segments result in margins of 25-35%.
If an affordable housing builder is selling apartments at INR 5,000 per sq. ft., and the construction cost is around INR 2,500, (then there are land, marketing costs and taxes) the margins are around 15-20%.
However, when input costs go up from INR 2,500 to INR 3,000 per sq. ft, as the case is today, it becomes difficult to make money, making affordable umm, unviable.
What Next?
🔽 “Developers who are struggling with wafer thin margins will find it difficult to pass on the price hike to buyers. If prices go up by 20%, buyers would hold their purchases,” feels Prashant Thakur of Anarock.
🔼 “The price rise will definitely impact margins of affordable housing projects. But when prices settle down, this issue will be solved,” is veteran NCR developer Pradeep Aggarwal's 'other side of the coin' view.
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And finally, some stagflation-free, zero-calorie good news:
India will start administering COVID-19 vaccinations to 12- to 14-year-olds from tomorrow, our health ministry said on Monday, as schools reopen across the country with standard restrictions amid a significant fall in cases.
The school of life. Sigh. See you tomorrow. 💚
☕ The Crew@Ginger Chai