News: Godrej Properties has a war chest of $1 billion, will like to enter new cities now: MD-28-03-2022
“We would like to enter new cities now. We are already amongst the top players in the top four cities and we intend to enter new cities in India. Sonipat is the first city in line of that strategy. For our new cities, the strategy is we would like to do plotted developments or low rise developments.”
“We have taken price hikes of 4- 8% across our projects at the start of Q4 and despite taking these moderate price hikes, we have not seen any major pushback from the customer. A lot of people understand the rationale for these price hikes and we will have to take disciplined price hikes as an industry because inflation is something which is here to stay and industry is already at a very low profitability,” says Mohit Malhotra, MD & CEO, Godrej Properties
You are looking to develop a project in Bangalore. What is the size, what is the revenue potential and what are the plans? Yes, we are very excited about this new project in Bangalore. This is a 30-plus acre development. Very excited about this land parcel and revenue potential is actually quite high. The project has almost Rs 1,000 crore plus revenue potential. We were very keen to grow in the Bangalore market and quite excited about this new project which we have signed.
Is it going to be all residential or a combination of residential plus commercial? It will be largely a residential-led project.
We are talking at a time where the real estate sector has made a strong comeback. But rising commodity prices stoking inflation, interest rates are likely to go up as well and that will impact home loans. Can anything hurt demand? How are you finding the right balance?
Yes, we have seen a lot of inflation in the last few months. Since the Russia Ukraine war started, the commodity prices for steel and aluminium are up almost 30-40%, which is not sustainable in the long run. We are witnessing extremely strong consumer demand. Even if interest rates go up a little bit, the demand may not falter now because affordability is at an all-time high. There has been almost eight years of downcycle in the residential market.
Prices have not grown over the last few years and in some places, have actually come down. During the same period, GDP growth was happening, the income growth of people was happening at closer to 10%. so affordability is really strong. People have also spent a lot of time in their homes during Covid which again is something which has really helped residential demand and I see demand to be remaining quite strong. I see it to be another very strong upcycle from here on which could run over a couple of years now.
Have you seen cost overruns? You have talked about how prices have not been going up despite the strong demand. Are they likely to go up? Are you going to hike property prices?
Yes, see the inflation is something which has happened the full of last year. It has surged up in the last few months but over the last year, inflation had picked up quite strongly. We have taken price hikes of 4-8% across our projects at the start of Q4 and despite taking these moderate price hikes, we have not seen any major pushback from the customer. A lot of people understand the rationale for these price hikes and we will have to take disciplined price hikes as an industry because inflation is something which is here to stay and industry is already at a very low profitability.
Recently you bought about 50 acres of a land parcel in Haryana. What are your development plans there and what is it that you hope to achieve in terms of revenues from this particular project?
We had highlighted that we would like to enter new cities now. We are already amongst the top players in the top four cities and we intend to enter new cities in India. Sonipat is the first city in line of that strategy. For our new cities, the strategy is we would like to do plotted developments or low rise developments. So, we have bought this 50 acres of land in Sonipat. We plan to do a plotted development there and the revenue potential is between Rs 750 to 1,000 crore in this project.
What is the downside of this kind of an expansion? Do you end up taking debt on your books?
have a war chest of close to $1 billion which we would like to invest in the industry over the next few years. We feel that the industry is now on a major upcycle and this is a great time to invest. We are quite aggressive and quite positive about the outlook for the market and would like to invest a lot of capital in the market. This is, of course, a relatively smaller deal from overall balance sheet perspective, but a very strategic one because this marks our entry into the new market of Sonipat and the tier II cities.
How are you taking advantage of this booming property market? Will you be entering new geographies? Are you also going to go to the smaller towns?
First of all, we would like to increase our market share in the top four cities of Mumbai, NCR, Bangalore and Pune. In each of these geographies, we are among the top players but our market shares is between 3% and 4% in each of these geographies. So the first strategy is to increase our market share and double our market share in these geographies. In addition to that, we feel it is the right time to do geographical expansion and enter some new cities which are closer to our key cities and we are focused on a hub and spoke model for these new cities and think a combination of these two is what is going to propel as our growth in the near future.
Earlier you had a Rs 3,750-crore fund raise. You have a large war chest, you have expansion plans and you are pretty much debt-free. Will we see more fund raises?
We would not need any more fund raise in near future.
