Piramal Fund Management (PFM), the financial services arm of Piramal Group, has achieved ₹10,000 crore of aggregate investments in South India’s realty sector. Amid a temporary setback in the realty market due to demonetisation, it is confident of achieving stronger growth in the South than other regions with its new financing products. Khushru Jijina, Managing Director, Piramal Fund Management, spoke to BusinessLine over phone about price corrections, market scenario and growth areas. Excerpts:

How will demonetisation impact the realty market?

There is no doubt that sentiments for the real estate for two quarters will be subdued. But let us look at what’s happening on the ground. I have been saying that for almost two years there has been a rapid consolidation happening in the realty market. What does it mean? Five years ago, buyers chose the developers who offered the maximum discounts. But today the customers are choosing between developers that will grow and those that will not. In other words developers who have been delivering and where the people feel safe with the money have been growing. All data points for the last couple of years indicate that launches of these developers have been able to sell. Demonetisation will only hasten the consolidation process.

How are southern markets behaving and where are the growth opportunities?

Our key focus markets in the South are Bengaluru, Hyderabad and Chennai. Bengaluru has been historically a stable market — neither the price goes too much nor comes down significantly. But when you compare with previous years, there is a slowdown, especially in the luxury segment, that is, flats priced at ₹2 crore and above. This has been caused due to general slowdown in the realty market and overhang of supply. But flats worth a crore and below sell well. Commercial segment has picked up and is doing well.

Hyderabad market has come back. That is why you see all ratios are the best today. But I would like to put a word on caution here. While commercial is doing well, residential is selectively doing well. In residential, very few pockets with some low ticket sizes of ₹40-50 lakh are selling faster.

Chennai is the worst performing market. Actually it should be the best market. Because, it has historically been an end-user driven market not an investor-driven one. But no fault of developers, some reason or the other pulled down the market. First, it started off with the collapse of a building and approvals stopped. Sales went for a toss. Subsequently, floods caused a slowdown. Everyone hoped the market will become stable after elections. Now, the Chief Minister’s health. The market has not come back to stability. If stability comes, it will be one of the best markets to be in.

There have been talks that the prices will crash. What is your view on price corrections?

We have been seeing prices softening anywhere between 8 and 10 per cent especially in the luxury segment. But the talk about 30 per cent correction may not happen at all and I don’t see prices crashing. Sales are subdued now, but nobody is in a mood to cut prices. Because margins have come down. It has come down from 40-45 per cent level to 20-25 per cent. So, where is the question of a 30 per cent correction? In case there is a pressure on everyone to cut, the correction will be less than 10 per cent. However, land prices will come down. The people who are sitting on land might have to negotiate at lower prices.

How are you devising growth strategies for the South?

Before 2016, we were fully focused on residential. In January this year, we announced that we will give construction finance to commercial projects – office buildings. We had projected an investment of ₹5,000 crore for this segment this year.

I think we have achieved that. Last week, we announced that we will move into lease rental discounting product. In South, the growth corridors will be Bengaluru and Hyderabad. In Chennai, commercial segment is doing well. The opportunity to lend to commercial projects is higher in the South. We expect to see a lot of deals being done in South over the next six months.

What is your investment strategy?

Our first choice will be the developer. We should be comfortable with the developer and then the project. We are a platform that provides private equity, structured debt, construction finance, bulk buying of apartments and now lease rental discounting. Of the total ₹30,000 crore, which includes assets under management and sanctioned-but-not disbursed amounts, ₹6,000-6,500 crore will be equity, while the rest will be a mix of others.

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