Prestige Estate believes that signs of a weak real estate market in Bangalore does not exist. It sees Q2 performance, in line with its Q1 numbers of Rs 1,300 crore. Irfan Razack, CMD of Prestige Estates affirms that there is no ready stock inventory accumulation in Bangalore and that such reports are just a perception that is floated around.
He cited the example of his product Prestige Sunrise Park which saw sales of 1000 units for the quarter. He also ruled out the possibility of a price cut as input costs have surged.
Speaking on the rentals for the company, he says that leasing by companies have spiked in this quarter. Besides, there will be a shortage of supply in the market in two-three years, which will push those prices up furthermore, he told CNBC- TV18. He also sees Q2 presales to be as strong as Q1.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Your worry appears to be the accumulation of inventory in Bangalore. How much is the inventory accumulation? What maybe the impact on real estate prices?
A: If you look at it, on the ready stock completed product, there is hardly any inventory in a market. It is only inventory that is under production. That depends on what type of product and size of launch and when the actual delivery has to happen.
In reality there is absolutely no stress. In fact this quarter has been very good. We did pre-launch of our project called Prestige Sunrise Park, it sold more than 1,000 units.
All these are large developments and each development will be about 2,000-2,500 units. So even if I have sold half of it, there will be the other half to be sold over a period of three-four years. It is not that inventory has to get consumed in day one.
On ground, ready stock inventory, with any developer there is hardly anything and it is just a perception that has been floated around.
Q: An Edelweiss report states that Bangalore inventory has risen from 23 months to 31 months and therefore they expect that in the current year a 5 percent cut in real estate prices. Is it possible?
A: I honestly don’t know where they get these figures from. If a launch is of five developments of 1,500 units each, i.e. 7,500 units, and these 7,500 units has to get produced between three-four years. That doesn’t mean to say that there is much inventory in the market.
Another thing about this perception about getting the price cut. I don’t know how a price can ever go down compared to the input cost that is rising every day. Government taxes, land prices are going up.
Only way that probably any correction can happen or will benefit anyone is in case the land price corrects itself and I don’t see that happening in the near future.
Q: Have you seen a bit of cut in enquiries for projects and the deal flow? Have you seen a bit of slowdown over the last three months on that account?
A: That is a perception. The last one week or so, every newspaper has been talking about real estate getting slowed down. Realty prices may correct it. It says nothing will happen to Mumbai, Bangalore is okay but in other cities, there could be some correction. But this sort of a stock automatically prevents anybody who wants to buy a home from taking that decision.
It is like you are advertising ‘don’t buy’. People are going to think twice. Real estate is not a perishable commodity. It is the only asset that does not depreciate. I have been in this business last 30 years and there could be a little sluggishness, but at the end of the day someone can leave it as an asset to their children, grand children and get huge returns over it.
Buyers are not only talking about children, grandchildren, buyers who bought from me, three-four years ago have benefited multiple times. We are in the business of asset creation and creation of wealth. There is no way anybody who commits to buy a home in whichever market good or bad, will lose money.
Q: What has been happening to rentals as that is also a sizeable chunk of your business?
A: Rentals are on course. There has been pretty strong leasing in spite of what is being talked about. A lot of companies are increasing the intake especially this quarter has been very good for us. We have closed out several large transactions of around a million sq ft. The supply is disappearing gradually. This is another contradiction in the lease market.
Moment there is a talk about too much supply people stop producing, if you stop producing and the current supply gets consumed, supply starts diminishing and with that the rent again goes up.
There are very few players in the rental market, the supply is not that great and I believe new supply is not coming in. At the end of two-three years, we will be running into a shortage.
Q: What is your pre-sales for Q2 likely to look? What is the total area you might have sold out in Q2?
A: We have already reported our Q1 sales at Rs 1,300 crore, including the land owner share. Q2 also will be pretty much in line. We have lined up some good launches which will give us a good gearing.