News: Residential real estate strongly poised for a bounce back: Godrej Properties-08-05-2020
Updated On: May 08, 2020
Residential real estate strongly poised for a bounce back: Godrej Properties
‘Industry leaders would benefit from both the demand revival as well as consolidation.’
I would not be surprised if after a year, year and a half we start seeing a very strong come back in real estate sector, says Mohit Malhotra, MD & CEO.
There is no denying that real estate as a sector has been hit hard. It is not just Covid, but pre-COVID as well, the sector was really grappling with issues. How do you see the prospects of real estate changing now and in particular, commercial real estate post Covid because all of us are going to live completely differently. If work from home is the new reality, that is bound to hit commercial real estate?
We have been hit as any other sector due to the lockdown, but we might have a short term disruption over the next six to nine months depending on how long the economy takes to revive. Our sector has been under a downturn for almost eight years and once the lockdown is over, once the economy bounces back, we will see a very sharp recovery in residential real estate sector because affordability is at all time high.
The repo rate today is at 4.4% which is the lowest ever for the last many years and it is even lower than the rate it was during the global financial crisis. Mortgage as a percentage of annual income for people is at historical low -- 20-25%. All the prices in most cities have either been stagnant or come down. So if you look at inflation adjusted prices the prices have come down over the years. Affordability is at all time high so once things stabilise and people have more confidence, we will see a very sharp revival in the residential real estate sector.
Players like us who are the leaders in the industry would definitely benefit from both the demand revival as well as the consolidation which is going on in the industry.
It seems NAREDCO has approached the Maharashtra chief minister’s office as well. While real estate activities have picked up in the green and orange zones, when it comes to cities like New Delhi or for that matter all of Maharashtra, things are very much at a standstill! Also, that is where most of your business is.
We are pan India players and we are present in all the top four metros. Right now, the Bangalore operations have opened up. Even in Gurgaon, we have started construction on a few sites and few more sites are going to go live soon. So thankfully, work has started in a few cities. Maharashtra and Pune of course, are severely affected and things are a little tough here but the government has allowed for pre monsoon works. So, we are going to start work on some sites. Overall, the state is badly impacted with Covis-19, especially Mumbai and the cases are constantly rising.
So, it is a wait and watch, the health of our employees is equally important for us. We would not compromise the safety of our employees in this context. But wherever things stabilise, and the lockdown lifted completely, we would start work on all our construction sites.
Some reports seem to indicate that the Covid-led disruption would weed out the weaker hands. What is your view on that as well as rental leasing? Would we see an abrupt end to the rental uptick cycle?
Your first question was whether this downturn will take out some of the players. The clear answer is yes. The consolidation trend in our industry started in 2017 with the introduction of RERA and post demonetisation, it got accelerated after the IL&FS crisis and the whole NBFC crisis which created a huge liquidity issue for the sector.
Covid-19 is of course the next level of disruption and a much bigger one. This will lead to a lot more consolidation in the industry, it will accelerate the consolidation and I would not use the word weed out because some of the players who are currently developers would go back to their core work of doing land acquisition and approval related work which had been their core strength and we will see emergence of very large national level developers in this country.
Just to give you some statistics; the top 10 players in India today have market share of around 11% at the pan India level. In China, the top 10 developers have more than 30% of market share of the Chinese market which is significantly bigger than India. So we feel that this trend is going to accelerate and we will see the emergence of very large real estate companies in India which will be good both for the sector and also for the consumers.
I know you said you expect a strong bounce back in the residential segment and that is an area that you as a company primarily focus on, but given that right now things are not really stable, we are seeing a slowdown across the board. Do you think that interest towards commercial real estate is something that you would explore now?
No, my personal view is that the residential real estate sector is very strongly poised for a bounce back. The commercial real estate sector started to revive from 2015 and is now at some of the historic highs.
We prefer a counter-cyclical strategy. The residential sector has been in a downturn for eight years and volume had come down by almost 50% across the country and prices have been stuck or come down. over the last eight years. If you do an inflation adjustment for pricing and look at the interest rates which are at historical low, the affordability is actually even better than 2009 when we had a very strong revival after the global financial crisis.
And you will be surprised that even during this period of lockdown when we are all confined in our homes, people were actually buying homes digitally. I personally feel that given what is happening in the stock market and given some of the other asset classes, there could be a strong revival of investors coming back into the real estate sector as an interesting investment class.
I would not be surprised if after a year, year and a half we might start seeing a very strong come back.
