Bangalore-based Sobha Developers, the chosen contractual partner of Infosys Technologies, is considered a quality leader in the realty sector.
It had a successful public issue but its stock is now down, along with the rest of the industry. Anil Urs spoke to managing director J C Sharma. Excerpts:
In the current scenario of rising input costs, hardening interest rates, stock market melt down and tight money flow, how is the realty sector coping?
The sector, after raising $20-25 billion in the recent past, faces increased accountability. Bigger players who have already raised resources will not be impacted by the currently rising cost of capital. Hence they will not only survive, but will gain in market share and consolidation looks like a natural progression to me.
But bigger players may face higher expectations and high input costs, and some customers will be unwilling to absorb the higher cost. This will result in a slowdown. But there is bound to be a bounce back once inflation stabilises as there is double digit increase in disposable income, especially in Bangalore.
How long do you expect the bear phase in realty to last?
Things will start looking up from the next year. With increase in their annual incomes by 15 per cent for the last four to five years in Bangalore, customers should be able to borrow comfortably and confidently in a year’s time.
Even if optimism sets in, demand may still take time to catch up. But optimism has an important role to play. The base price may not come down but people will still need a home. This will make them start buying and should give some comfort to the industry and related sectors.
Do you see the industry getting more professional or stopping in its tracks during the slowdown?
The industry is witnessing introduction of good accounting practices and that in turn has raised expectations. Now in the hour of crisis it has to handle itself professionally.
Yes, the real estate industry will get professional. The sector will bring in professionals to tide over the crisis and we will see them handling the crisis.
How is Bangalore, a major realty market, facing the slowdown?
As far as Bangalore is concerned, we feel the slowdown is exaggerated. It appears to be more in other parts of India.
Demand in Bangalore is mainly driven by affordability and we feel this slowdown will soon be a thing of the past. Bangalore does not face the problem in apartment sales. These can be sold at Rs 3,000 to Rs 3,500 per square feet.
There has indeed been a rapid increase in prices but as the country still needs huge quantities of homes and as the per capita income in the city is still high, we remain optimistic that this will create demand.
How is Sobha Developers facing the slowdown?
As far as Sobha Developers is concerned, we have done well in Thrisoor, Coimbatore and Bangalore. It is Pune where we are facing problems - the ‘new city experience’. Hence we needed to strengthen our sales and marketing presence in that city which has been addressed. We feel this will improve our performance.
The company is predominantly into residential and contractual projects. Are you planning to enter other asset classes like commercial, hospitality, retail, logistics and warehousing to spread risk?
Residential and contractual business still make up most of our income. But being south based, we have a good pipeline of commercial projects which includes commercial office space, and retail in Bangalore and in other cities.
Our plans have been frozen and things are progressing. The time frame for this development to kick-off depends on government approvals which had slowed down.
You have built backward integration. Is it helping you during the slowdown?
We are happy with our backward integration model. This has worked for us and has indeed helped us control cost, quality and on-time completion of projects.
There has been a significant drop in the company’s share price. Will this impact your growth?
The drop in the company’s share price during the market meltdown has not impacted us. Nor are we concerned, for we are not raising money further through the equity route. Hence, it is only the market dynamics which is playing out. What we can do about it?
