 "Boost to consumer sentiments if LS election outcome positive: Pirojsha Godrej")
Continuing with its strategy of partnering with land owners instead of using up capital to build land banks, Godrej Properties recently launched its new residential project in Pune. However, Pirojsha Godrej, Managing Director & CEO, Godrej Properties believes the real growth would come from a revived economy under a new government. In an interview with Vinay Umarji, Godrej talks what the industry and the company expects from the new regime that could fuel further growth. Excerpts:
Real estate players say that the industry outlook will depend a lot on post poll scenario. What are your views?
From a customer point of view, it is a good time to buy an apartment because there are quite attractive prices available in the market given that the overall economy hasn’t done well. As the economy improves and consumer sentiment improves, the real estate sector will start to do much better. There is obviously an opportunity through the elections for there to be a boost to consumer sentiments if the election outcomes is really positive which I think it will be. It is not so much about who comes in but more about a new government being formed and fresh mandate being given, new decisions can be rolled out. The new government will have an opportunity to really push for economic growth. I think certainly that could be a positive trigger for the economy.
I better stay away from making predictions. Any party that decides to bring about a strong policy framework to encourage growth while also of course looking at policies to make sure that growth is socially inclusive. I don’t think it is necessarily only one party or one government that can do that. But I hope is that there is a good mandate for the government. And also there should be better co-operation between the government and the opposition to do things that are really in the interest of the country.
Focus on the quality of governance is a major issue. I think the ease of doing business in India is very very poor. That needs to be considered at length by the government. The government will have to think through various facets like how good is the regulatory environment, how to make things simple for a company that wants to do the right thing to go, how do they focus on reducing mis-governance and corruption, and also what policies can they bring in to open up the economy and push for growth. Goods and Services Tax (GST) being introduced, for example, could be a positive thing. Could they look at other economic reforms in various sectors of the economy to bring out a system that supports growth of setting up business or bring in institutional capital. Infrastructure has been an opportunity both for the real estate sector and the economy. Infrastructure getting a major push could have huge benefits for the economy. It could encourage fresh investments and lead to more job creation.
Other real estate developers have been buying space and building huge land banks for themselves. Why is Godrej still partnering with land owners for projects instead of building its own land bank?
We think our model can generate much better returns than the model that involves land purchasing. With a smaller amount of capital we can secure large share of returns in a particular project which in turn will allow us to do more number of projects. So if you look at the number of projects that we have been adding is reflective of the fact that we are not committing too much capital into buying land. With the same amount of capital we can produce much higher overall returns.
Post elections, how do you see the interest rates playing out for the industry?
The RBI will be looking at supporting growth to the extent that they can within the framework of keeping inflation under control. They will of course calibrate their measures depending on how both inflation and growth are looking. My sense is that the inflation is likely come under more and more control during the course of the year. It is already starting to come under control. There are few things that have already happened that will help support that. 1) Rupee strengthening which will be supportive to inflation reducing. 2) CAD also being brought under control 3) The government will also give RBI the confidence that will inflation will come down. Our expectation will be over the course of 2014 we will see inflation reduce and therefore the room RBI has to reduce interest rates. We will see in all likelihood interest rate reduction later in the year.
You recently launched a project in Pune. How do you plan to foray and strengthen your presence in emerging tier 2 and 3 cities?
Pune is the second city we had entered many years ago and along with Ahmedabad, they both are important markets for us. Our basic strategy is to focus on the top 8-10 markets in the country and we are currently in the 12 cities, of those the biggest cities we are present in are Mumbai, NCR, Bangalore, Pune, Ahmedabad, Chennai and Kolkata. These are the top markets for us where we see a large opportunity to grow. There is no shortage of opportunity and you can keep going to newer cities. But for us the biggest opportunity to grow ourselves within these cities. For instance, in some of the cities that we are in, there are opportunities to do many projects in one city in different locations. We should not be doing one or two projects in these cities. We should be adding more number of projects in the cities that we are in rather than trying to go to too many new cities.
The Ahmedabad project has seen quite a delay in launch of recent phases. Reasons?
About a year ago, there were some delays in approvals which have now been sorted out. We have had our first hand-overs now and some of our first residents are already living in the township. There are large number of hand-overs we are planning over the next 12-24 months. We will have huge increase in the population of people living here over a period of time. Even in the difficult real estate market that we have had over the last year, we have actually seen higher sales in the current financial year in Ahmedabad than what we have seen in the previous one. This project has sold more than any other project that the company is involved in other cities.
Lately, the focus has been on the Rs 20-25 lakh bracket low cost housing. What are Godrej’s plans for the segment?
We do have smaller units that are in that segment. There is opportunity in all segments of the market. In most of the cities we have projects that cater to all levels of price points. Even in the Ahmedabad township, we will have much luxurious apartments and down the road we might have some large villas. We also have much smaller units targeted at customers who can afford more in that Rs 20-25 lakh bracket. It makes lot of sense to cater both markets since there is good demand in both markets. We will have certain amount of some of our bigger projects that cater to that market size but that isn’t going to be necessarily prime focus of our business. Majority of our projects will be in the Rs 30 lakh to Rs 1 crore price point range.
Real estate players say that the industry outlook will depend a lot on post poll scenario. What are your views?
From a customer point of view, it is a good time to buy an apartment because there are quite attractive prices available in the market given that the overall economy hasn’t done well. As the economy improves and consumer sentiment improves, the real estate sector will start to do much better. There is obviously an opportunity through the elections for there to be a boost to consumer sentiments if the election outcomes is really positive which I think it will be. It is not so much about who comes in but more about a new government being formed and fresh mandate being given, new decisions can be rolled out. The new government will have an opportunity to really push for economic growth. I think certainly that could be a positive trigger for the economy.
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Which government do you think will be favourable for the real estate industry? What are your expectations from it?
I better stay away from making predictions. Any party that decides to bring about a strong policy framework to encourage growth while also of course looking at policies to make sure that growth is socially inclusive. I don’t think it is necessarily only one party or one government that can do that. But I hope is that there is a good mandate for the government. And also there should be better co-operation between the government and the opposition to do things that are really in the interest of the country.
Focus on the quality of governance is a major issue. I think the ease of doing business in India is very very poor. That needs to be considered at length by the government. The government will have to think through various facets like how good is the regulatory environment, how to make things simple for a company that wants to do the right thing to go, how do they focus on reducing mis-governance and corruption, and also what policies can they bring in to open up the economy and push for growth. Goods and Services Tax (GST) being introduced, for example, could be a positive thing. Could they look at other economic reforms in various sectors of the economy to bring out a system that supports growth of setting up business or bring in institutional capital. Infrastructure has been an opportunity both for the real estate sector and the economy. Infrastructure getting a major push could have huge benefits for the economy. It could encourage fresh investments and lead to more job creation.
Other real estate developers have been buying space and building huge land banks for themselves. Why is Godrej still partnering with land owners for projects instead of building its own land bank?
We think our model can generate much better returns than the model that involves land purchasing. With a smaller amount of capital we can secure large share of returns in a particular project which in turn will allow us to do more number of projects. So if you look at the number of projects that we have been adding is reflective of the fact that we are not committing too much capital into buying land. With the same amount of capital we can produce much higher overall returns.
Post elections, how do you see the interest rates playing out for the industry?
The RBI will be looking at supporting growth to the extent that they can within the framework of keeping inflation under control. They will of course calibrate their measures depending on how both inflation and growth are looking. My sense is that the inflation is likely come under more and more control during the course of the year. It is already starting to come under control. There are few things that have already happened that will help support that. 1) Rupee strengthening which will be supportive to inflation reducing. 2) CAD also being brought under control 3) The government will also give RBI the confidence that will inflation will come down. Our expectation will be over the course of 2014 we will see inflation reduce and therefore the room RBI has to reduce interest rates. We will see in all likelihood interest rate reduction later in the year.
You recently launched a project in Pune. How do you plan to foray and strengthen your presence in emerging tier 2 and 3 cities?
Pune is the second city we had entered many years ago and along with Ahmedabad, they both are important markets for us. Our basic strategy is to focus on the top 8-10 markets in the country and we are currently in the 12 cities, of those the biggest cities we are present in are Mumbai, NCR, Bangalore, Pune, Ahmedabad, Chennai and Kolkata. These are the top markets for us where we see a large opportunity to grow. There is no shortage of opportunity and you can keep going to newer cities. But for us the biggest opportunity to grow ourselves within these cities. For instance, in some of the cities that we are in, there are opportunities to do many projects in one city in different locations. We should not be doing one or two projects in these cities. We should be adding more number of projects in the cities that we are in rather than trying to go to too many new cities.
The Ahmedabad project has seen quite a delay in launch of recent phases. Reasons?
About a year ago, there were some delays in approvals which have now been sorted out. We have had our first hand-overs now and some of our first residents are already living in the township. There are large number of hand-overs we are planning over the next 12-24 months. We will have huge increase in the population of people living here over a period of time. Even in the difficult real estate market that we have had over the last year, we have actually seen higher sales in the current financial year in Ahmedabad than what we have seen in the previous one. This project has sold more than any other project that the company is involved in other cities.
Lately, the focus has been on the Rs 20-25 lakh bracket low cost housing. What are Godrej’s plans for the segment?
We do have smaller units that are in that segment. There is opportunity in all segments of the market. In most of the cities we have projects that cater to all levels of price points. Even in the Ahmedabad township, we will have much luxurious apartments and down the road we might have some large villas. We also have much smaller units targeted at customers who can afford more in that Rs 20-25 lakh bracket. It makes lot of sense to cater both markets since there is good demand in both markets. We will have certain amount of some of our bigger projects that cater to that market size but that isn’t going to be necessarily prime focus of our business. Majority of our projects will be in the Rs 30 lakh to Rs 1 crore price point range.