Commercial realty could revive in the next two quarters

Commercial realty could revive in the next two quarters
The Financial Express, August 8, 2009, Page 4

Mona Mehta

After filing draft red herring prospectus (DRHP) with the Sebi for an initial public offering (IPO) through which the company plans to sell 9.4 million equity shares constituting 13.5% of its paid up capital, Godrej Properties has now outlined the vision for construction and launch of forthcoming projects. Milind Korde, managing director of Godrej Properties Limited, spoke to FE's Mona Mehta on the green shoots in the realty sector and the development of townships. Excerpts:

Now that market conditions are improving, when do you foresee revival of the real estate sector?

Residential real estate sector has started seeing marginal revival in terms of inquiries turning into sales during the fiscal first quarter, as compared to 100% dip in demand the sector witnessed during Q3 and Q4 of last financial year. Commercial real estate sector could see a revival in the next two quarters as compared to 25% dip in demand in Q2 2008-09. Demand from commercial IT sector has not yet picked up. In the next six to 12 months, depending on inflation a marginal rise in real estate prices is expected. We are planning to launch five to six new residential projects and two commercial projects in the next six to nine months.

Ninety-seven percent of Mumbai’s population is in need of affordable housing. Is Godrej Properties looking to enter this segment?

Not really. This is because margins in affordable housing are less in comparison to developing regular homes for end-buyers. We do not believe in compromising with the quality of homes that we offer to customers and most of the apartments on offer would be mainly two and three BHK apartments in metros. As for ‘affordable housing’, we are currently talking to various landowners in major metros toe valuate possibility of joint ventures with them on a profit and revenue sharing model. This could make our properties affordable to end-buyers.

How is Godrej Properties planning to broad base its business model?

We are going to focus on development of townships across India. To start with, we are eyeing Ahmedabad, Chennai and Chandigarh to develop township projects. We are awaiting approvals of new guidelines being formulated by the government that will benefit long-term developers developing townships.

What are the major challenges companies are facing in the real estate industry?

Since this budget did not really meet up with builders’ expectations, we are finding it difficult to pass on price benefit to customers. Even though interest rates on home loans have reduced and banks are stuffed with sufficient funds, it might still take about two quarters for actual sales conversion to happen.