Godrej Properties Thinks It’s Best Placed To Reap Gains From A Real Estate Revival

India’s second-largest developer by market value expects a recovery in the struggling real estate sector soon, even as the economy is estimated to grow at the slowest pace in 11 years in 2019-20.

After 6-7 years of a real estate slowdown, Pirojsha Godrej, executive chairman at Godrej Properties Ltd., is convinced that the next recovery is going to be structural.

According to him, the turnaround will begin soon and won’t just last two years. “We’re talking about a structural growth story that’s going to last 20-30 years. Within that, you will have periods of more positive momentum and slowdown, but overall, the momentum will be very strong.”

India’s developers have struggled to raise cash since surprise defaults by AAA-rated IL&FS Group in September 2018 dried up funding for non-bank lenders, the biggest financiers for the real estate sector. That stalled projects, adding to inventory that piled up after demonetisation and the rollout of a stricter housing law.

While large developers with ability to raise funds have fared better, stagnant wages in a slowing growth could make things worse for an industry long-considered a vital indicator of economic health.

Developers did see an uptick in demand driven by discounts during the Diwali festival period, raising optimism about a real estate revival. According to Anarock’s estimates, sales are likely to decline year-on-year in the quarter ended December. And it expects only a marginal fall in inventory despite fewer new launches in the top seven cities.

Godrej sees this as an aberration, betting on a rise in disposable incomes and urbanisation to drive demand for homes. “We’re still largely a rural country, and as the economy develops, as per capita incomes rise, you will see an increasing number of Indians shifting into cities, as has happened in every other country that has gone through this stage of growth.”

He said the commercial property segment is midway into a recovery, while the residential category is close to bottoming out. Once it finds that bottom, the residential real estate will grow exponentially and even surpass growth in the commercial segment, he said.

And the turnaround will be more beneficial for strong developers like Godrej Properties, he said. “Given our brand, our geographic presence, our capacity to invest now when the market is struggling, the opportunity for Godrej Properties is disproportionately strong in residential real estate, and that’s where we’d like to really sort of go all in. We’re redoubling on that bet, and the capital raised earlier this year will enable us to move even more strongly on the opportunity we currently see.”

Unless something very unexpected happens, the sector should see pretty rapid growth, Godrej said. “Within that rapid sectoral growth, the opportunity for consolidation and market share gains is also fairly obvious.”

Godrej Properties will focus on Delhi-National Capital Region, Mumbai, Pune and Bengaluru. The four cities contribute almost two-thirds of the value of real estate sold in the whole country, and increasing the depth of presence in these markets will allow the company to address a very significant part of the overall pie, according to Godrej. Still, in the medium to long term, the company would consider expanding beyond these cities.

Affordable Vs Luxury

Godrej Properties will continue with its strategy of launching projects in the mid-income category even as it has some premium properties under development. “That’s where most of our projects have come and I think will continue to come from,” Godrej said.

That would also depend on the market, he said, citing the example of Mumbai’s central business district of Parel. “It’s clearly oversupplied, but that doesn’t mean that Godrej Properties couldn’t do a project there. I think we will just have to be confident that we have an offering for a customer, whether through pricing, or through the format of apartment size, that’s disruptive and therefore would succeed even in a slow market.”

WATCH | BQ Conversations with Godrej Properties’ Pirojsha Godrej