Real estate firm Godrej Properties Ltd (GPL) plans to use the ongoing struggle and slowdown in the real estate sector as an opportunity to scale up its business and consolidate market share.
The last financial year was a breakout year for the Mumbai-based developer, in terms of sales booking volume. Earlier this year, it raised ₹2100 crore through a qualified institutional placement (QIP). In a telephonic interview, Pirojsha Godrej, executive chairman of Godrej Properties, spoke about the impact of the liquidity stress in non-banking financial companies (NBFC), the company’s growth and investment strategy, the iconic RK Studios project launch and affordable housing.
Article by Madhurima Nandy | Live Mint
How has the ongoing NBFC liquidity crisis impacted real estate firms?
Pirojsha Godrej: The impact has clearly been quite bad. Not that the situation was good before this, but this crisis has worsened the liquidity environment for the real estate sector. In yet another way, the NBFC crisis also further pushed consolidation in the sector, for anyone who doesn’t have the ability to raise money or a strong balance sheet and no access to capital. Companies who are well-placed are therefore at an advantage over the others.
Five years into the real estate slowdown, how has the consolidation story played out in the residential sector?
In terms of strong balance sheets and sales numbers, there are top 5-10 developers who have significantly grown in the last five years, and it is a good opportunity to gain market share compared to other developers. We see a big opportunity in the current situation to gain market share, take on new projects and scale up.
GPL has considerably expanded its portfolio as distress deepened during these slowdown years. What kind of opportunities do you see now?
Despite the pessimism, as we add new projects and enter new micro-markets in large cities and deepen our presence, our market share will rise in the short term. With the sector undergoing challenging times, we saw huge opportunities and needed to be well-capitalised. The equity raise through the QIP was well-timed to take advantage of a counter-cyclical investment strategy and strengthen our business development pipeline. We intend to invest ₹5000 crore in the next two years, through a combination of equity and debt, in new projects.
Given that the residential sector is still under stress, what kind of homes are selling today?
It’s evident that smaller units and more affordable projects have sold better than luxury homes. But sales are also dependent on the right product for a certain micro-market. If customers today perceive any risk associated with the developers or in under-construction projects, they will stay away. Developers who have a good track record and better credibility are better positioned in the current market. For instance, our premium project launches have also done well.
What’s GPL’s take on affordable housing?
By the government’s definition of affordable homes, priced at ₹45 lakh and below, we already have a fair amount of projects in that category. But we don’t need a separate vertical for affordable projects and can profitably operate both (affordable and premium). But for truly affordable housing, which is building homes for the bottom of the pyramid, we don’t have any plans because scaling would be a challenge. For us, the focus will be on mid-income housing.
GPL bought RK Studios in Mumbai earlier this year. What’s the current status?
We are working on the design right now. It’s going to be largely a high-end residential development with some retail. We plan to launch the project by the end of this financial year.
What is the road ahead like for the sector? Do you expect a recovery anytime soon?
To estimate the time that the sector would take to recover is tough. It could take six months or a year. But inventory levels are reducing and project launches are happening, so the turnaround is expected to happen soon. I believe the foundation and the conditions of the next turnaround are being laid now. There are only a few developers today who are planning expansion, new projects. Once the current inventory is absorbed, it’s going to be a fresh start for the sector.