Personal Finance

‘Residential space in good demand'

R. Balaji | Updated on July 16, 2011 Published on July 16, 2011

Mr Pirojsha Godrej   -  BL

‘Every percentage point hike in interest rate can be offset if there is a 7-per cent hike in income, and that is happening'.

Godrej Properties is seeing a demand for residential space across cities where it has a significant presence. While a strong brand supports this growth, there is sustained demand for quality built-up space across cities, which will hold despite some negative sentiment. The apparent slowness in the market will help to stabilise prices, feels Mr Pirojsha Godrej, Executive Director, Godrej Properties.

In a telephonic interview to Business Line, Mr Godrej said markets for residential space across cities are doing well with strong sales reported up to the fourth quarter of 2010-11 exceeding that of the previous three quarters combined.

In Mumbai, there are signs of slowdown; this can be attributed to the ‘fast galloping' prices during 2009-10. But this is not the case in many other cities, especially where Godrej Properties can talk from its own experience of delivering projects, he said.

For instance, in Ahmedabad the company has sold over 4 million sq. ft. of space in the last 15 months, in Kolkata has sold over one million sq. ft. in 18 months and sales in Gurgaon have also been good. In Bangalore, the company's 1.8 million sq. ft. project has been sold out.

Chennai project

In Chennai, the company is soon to launch a 2-million sq. ft. residential project. Except that the regulatory process is slow and the project start has been delayed, the company is confident the city holds strong potential, he said.

Even in Mumbai and Delhi, the market cannot be described as going through a slump, feels Mr Godrej. While the company does not have a project in Mumbai, he said that sales have been slow on rapidly spiralling prices. But that is seeing a correction with market resistance and developers are increasingly willing to negotiate and prices coming down by about 10 per cent. Despite the increasing costs, developers are bringing down prices, which are bound to stabilise in the coming months, he felt.

In Gurgaon, where Godrej Properties entered last year, prices and volumes are good. Mumbai and Delhi are places where the absolute volumes are huge and there is stiff competition among builders, he said.

Real concern

The real concern is the increasing cost of funds for developers and home buyers. So far the increasing interest rates have not dampened buyers' enthusiasm. Also, interest rates are expected to peak soon, with the possibility of one more hike and then stabilise.

Mr Godrej pointed out that normally interest rate hikes “do not stop buying.”

But it is important that income should also grow for the people. Normally, every percentage point hike in interest rate can be offset if there is a 7-per cent hike in income which will help sustain affordability for the buyer, and that is happening, he said.

“I do think the customers are doing well, the economy is doing well. The first thing people with an income want to do is get a home,” Mr Godrej said.

Builders too are facing increases in cost of funds. For Godrej, with its strong brand, last year the cost of funds were less than 10 per cent but this year it could be in the range of 11-12 per cent. However, there are no problems in getting loans, he said.

But most stand-alone developers are bound to be under pressure as borrowing costs for the industry could be higher at about 16 per cent from non-banking financial companies and others.

Published on July 16, 2011
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