This is one of the best times to buy land for developers: Oberoi Realty MD

In a Q&A, Vikas Oberoi explains why he is bullish on the redevelopment business in Mumbai

Property developer Oberoi Realty posted the highest ever quarterly sales bookings in Q4FY21. The company plans to pursue redevelopment of residential buildings and buy new land parcels to launch new projects. The company's chairman and managing director Vikas Oberoi explains reasons behind its plans and outlook for both residential and commercial segment, in an interview with Raghavendra Kamath.

What kind of sales booking are you targeting for FY22?

As a company policy, we do not give forward looking statements but are confident of a strong sales performance in FY22 as well. Customer’s preference to deal with select established players and limited supply of quality developments owing to only select developers having the financial capability to launch such projects will ensure that we are uniquely placed to capitalise on this competitive advantage.

Why are you bullish on the redevelopment business in Mumbai?

The economics of redevelopment versus buying fresh land for development is not very different, especially when you put together all types of costs and associated project risks. Hence, we evaluate all opportunities at their own merits and do not apply a generalisation bias of preferring redevelopment over fresh development or vice-versa. I believe that there is a big dearth of developers having the financial and technical capability to execute some of these large redevelopment projects which places us in a strategic position to leverage this as an opportunity.

In the recent concall, you said you are looking to buy land. Do you see a substantial drop in land prices?

We are always looking to buy land and we have a set criterion for the same. Like any other business, we want to expand our horizons and enter new markets/micro markets. Therefore we consistently and constantly keep on looking at buying new land parcels. I believe this is one of the best times to buy land as the sellers are seeing a significant value and brand erosion, limiting their options for asset monetization.

Do you think developers will give discounts or schemes to get buyers back this year?

Most residential projects available for sale in the market are already at a discount to replacement cost. It does not reflect the recent and massive increase in cement and steel price. In fact there is a big chance prices will go up. At Oberoi Realty, we do offer various financial schemes to address different customer segments, but we have never considered discounting as a lever to generate sales because that is neither sustainable nor it is in the best interest of our existing customers. We believe in selling a quality home and not a lucrative pricing deal which does not have any strong value proposition in terms of the product

You said Q1 will be a washout. Can you elaborate?

Yes. This is due to the obvious reason for site sales offices not being operational. Despite all the technology and innovation, home buying still remains a very emotional and expensive investment so customers do want to visit the site, look at the construction quality and progress, view the show apartment, feel and visualise the experience of living an upgraded lifestyle before making a purchase decision. We expect site and show apartment visits to majorly pick up swiftly once the lockdown like restrictions are relaxed.

What is your outlook for real estate in the remainder of FY22 for both residential and commercial?

I believe India is significantly under built and there is a great potential for the real estate sector to grow. Coupled with this, the inevitable consolidation in the sector and customer’s comfort to deal with select few reputed developers who have financial stability will ensure that the market share for established players continues to grow. Hence we are very positive about the sales momentum of the previous financial year to continue in FY22 as well. Since the onset of the pandemic, the need to have a safe and secure environment for one’s family has naturally become the top priority for every home buyer.  We are seeing a clear trend of consumer preferences moving towards spacious homes that can cater to the needs of every family member. In our recent launches, our fastest selling product has been the larger area apartments and we believe that this trend will continue.

Do you believe the sale of apartments will sustain now, given that governments have withdrawn cuts on stamp duty?

The stamp duty discount did help the buyer and the government (which posted the highest ever collections) and also give a strong boost to sales, but we also witnessed that the realisation of owning a spacious home that is part of a larger integrated development catering to all essential and lifestyle needs has become one of the core purchase drivers. This is true especially for the customer segment of “upgraders” wherein people intend to upgrade from their current residence into a bigger apartment which has a better lifestyle value proposition. Stamp duty benefits accelerated the decision making process but the underlying reason for buying a home has always been the need for a better lifestyle and that will ensure the sustenance of sales momentum.