According to Pirojsha Godrej, MD & CEO, Godrej Properties, the phase II sales figures have been good. He expects average realisations for phase II to be at least 10 percent higher than that of phase I.
According to him, the phase II sales numbers so far have been good. He also expects average realisations for phase II to be at least 10 percent higher than those of phase I.
Although the overall residential market has been weak for the sector, the company has found takers for its projects, says Godjrej. The weakness was especially seen in NCR and Ahmedabad compared to Mumbai, he added. However, commercial real estate has been the pocket of strength for the sector, says Godrej.
He also confirmed the company’s plans to monetise commercial assets to the tune of Rs 1,500 crore within the calendar year. The company plans to monetise commercial assets in Mumbai, Kolkata and Chandigarh.
Below is the verbatim transcript of Pirojsha Godrej’s interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Latha: Is this New Year meaning that your Trees project is selling better, is the launch of the second phase for which we have invited you meant better margins?
A: The launch of the Trees is indeed doing very well and we have seen a price increase in that. We are very happy with the reaction so far. Of course, it is still early days but the big news for us today is that we are forming a 100 percent subsidiary Godrej Fund Management through which we have raised USD 275 million residential investment platform which is follow on from a platform that we had raised in 2012. So we are very excited with that piece of news and we think there is a big opportunity in the current markets to deploy this capital well and generate a lot of returns from here.
Reema: If you could tell us since you launched the project phase II on Thursday what percentage has been sold already and you were talking about a price increase so can you tell us from phase I to phase II what has been the average realisation increase?
A: The sales numbers have been very good, we are still very much in the process of launch so we have come out with a consolidated announcement about that in a little bit. We are very happy with the volumes that have been sold in phase II especially given that phase I was launched just three or four months ago.
On the pricing front on an average realisation we expect pricing to be about 10 percent higher than in phase I. So, overall I think both phase I and II have gone off to a very good beginning.
Latha: Can you tell me exactly how this fund management helps you? Who are the participants in this fund and what does it mean to the company?
A: The idea of this fund is to access significant sources of capital for which we can use to go out and do new business developments or either buy lands or enter into project partnerships where there is a large upfront capital requirement. What this platform does is it allows us to do such large deals without having to put that capital in directly from Godrej properties. So, this should be a very significant boost to our business development activities.
Particularly, in a market like the one we are in today, where there is some distress and there are other developers and land owners who are seeking exist or who need infusion of capital this will give us a big boost in our efforts to scale our portfolio.
Latha: These guys don’t get shares of Godrej Properties they get an investment in the projects that you may buy?
A: Yes, this is nothing to do with the entity level of Godrej Properties. This is a business development strategy. This pool of capital will be used to fund new projects and access new projects for the company in partnership with our investors. This round of capital like the first round we raised in 2012 is being led by APG which is one of the world’s largest pension service providers based out of Netherlands.
Latha: So, this doesn’t mean any cost to your company? What is the return on investment that these guys expect?
A: This is a pure equity deal. We will be co-investing our stake in this platform which is 20 percent. So, 20 percent of all capital will be invested by Godrej Properties. 80 percent by our partners, there is absolutely no commitments of any kind. It is a purely equity partnership. On top of our equity returns we will earn substantial fee income and performance incentives on the upside.
Reema: But no expected internal rate of return (IRR) that you can help us, you can guide us with?
A: Of course there is an excepted IRR and for most such platforms that is in the range of about 20-25 percent. However, the point is that it is not in anywhere a committed IRR that is the plan as we invest. So, again the Godrej Properties expectation on IRR would be much higher than that because that would also include our fee income and incentive income.
Reema: Have you indentified any projects where this particular fund will be investing in?
A: We are looking at some projects that are at a fairly advanced stage so we hope to have some positive announcements on that front in the coming months, but nothing that is immediately being announced now.
Latha: Are the higher rates been accepted by the market for the cost of the Trees?
A: As I said, the response has been very strong. The pricing has been planned in a way that we are confident of doing good volumes and that will be the case. All in all we are very excited with how that project is done as you know the first phase was nearly sold out within a month or two of launch. This phase even at higher prices has seen a very good initial response, so that project has been one of the very strong positives for the company this financial year.
Reema: Recently there were lot of news reports which suggested that the company will be selling commercial assets worth Rs 1,500 crore in calendar year 2016? What has been the update on that? How much have you sold up until now and how soon will you be selling, anything more?
A: As we said that is the broad target. We do have three commercial projects all of which are nearing completion. Two of them actually we now have occupation certificate in Kolkata and Chandigarh. Our third project and the most important one is here is Mumbai in Bandra-Kurla Complex and that project is also very near completion.
The progress we expect to see this year once and either of these projects are complete is very strong and what I had mentioned earlier was that within this calendar year our goal is to sell out entirely this projects. So, we will provide updates on how that is going as part of your quarterly end of the year update. However, I think the important thing is that now these projects are complete, investment in to these projects are complete and we expect to be able to unlock quite a lot of capital as we sell this in the coming quarters.
Latha: Can you also leave us with how overall the market looks? Which are the pockets where you are seeing better demand in the fourth quarter and in the next quarter and which are the pockets where you see better realisation likewise where do you see softer demand and softer realisation?
A: The overall residential market in the country is quite weak. We have been very happy with the response all our projects this year have received. Up till the end of the third quarter our sales booking for the year almost doubled year-on-year. However, there is no question that the market itself has been quite weak.
The pockets of particular weakness I would say are NCR, Ahmedabad have been particularly slow. On a relative basis I would say good projects in Mumbai have done quite well including The Trees. Bangalore, Pune have been reasonably steady but also not very strong. So, I think overall if the financial year has been a weak one for residential real estate but that for us we feel creates a lot of opportunities to access new projects which this fund management announcement is a big piece of. Also our own sales are quite healthy which leaves us very confident of scaling into new projects. One pocket of strength for the industry this year has been certainly a turnaround on the commercial side of the sector. So, commercial real estate in most cities has seen a pick up and that is something we continue to expect to benefit from in the year ahead.