Ramashrya Yadav, Head Finance & Strategies, Orbit Corporation not only expects 20-22 percent price cut across the board but also sees weak earnings going forward.
Ramashrya Yadav, Head Finance & Strategies, Orbit Corporation says most realty developer has huge a inventory pile-up that will result in 20-22% drop in prices across market.
Orbit's inventory pipeline currently stands at 65 percent compared to the normal range of 30-35 percent.
Moreover, Yadav expects earnings to remain weak for the coming three to four quarters, since they have not been able to launch any new projects for almost last eight quarters.
Commenting on SC order, he says around 90-95 percent Mumbai realty developers have been collecting the value added tax (VAT) for the last 3-4 years and some of them have been paying it to the government too. Therefore, he does not expect any incremental negative form the Supreme Court order.
The Supreme Court had upheld the earlier Bombay High Court verdict that asked builders to pay 5% value-added tax for sale of underconstruction houses between 2006 and 2010 in Maharastra.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Is this fresh negative, have you ever sold flats for which you have not paid VAT or not collected it from your customer?
A: As far as real estate companies in Mumbai are concerned a lot of us have been collecting and paying the value added tax (VAT) for about last three-and-a-half-four years.
The real contention was the service tax, which was on the basis that if the building was not completely delivered, it would amount service to the buyer. That is what Supreme Court has taken into account and has ruled out any non-collection or payment of VAT for real estate companies.
However, 90-95 percent of the developers have been collecting VAT and although some of them have been holding it back, others have been depositing it. So, I would not consider it as a fresh blow. It was already in the offering, it was just the matter of getting it upheld at the Supreme Court.
Q: Can you come again about the service tax. Is that separate from the VAT or is that included in the VAT?
A: It is separate from the VAT and it is 3.79 percent for the flat sizes above 1,000 square feet or the value above Rs 1 crore.
Q: Do customers have to pay it only after delivering?
A: The customers have to pay it along with the payments that they make on ongoing basis for the projects.
Q : What was different about what the Supreme Court said?
A: The Supreme Court has basically upheld, whatever already was communicated and the developers were anyways doing that. So, the blow was already on the customers for about last four-five years. It is just that it has been now regularised and legitimate.
Q: The other issue is the inventory levels that have reached record highs for this sector. In Mumbai itself what are the inventory levels like and do you think that is restricting and we are seeing lower demand because of that and lower sales as well?
A: Inventory if bifurcated into two parts; (1) the inventory which is not matured, which is under pipeline and (b) which is already on the ground.
If you look at the percentage or the ratio, it is almost 60-70 percent of the inventory which is in pipeline which was invested between the periods of 2008 to 2011, which has not even come up on the ground.
So, there is a double whammy for developers (a) the cost of holding that inventory has been considerably putting down the performance and the RoE and (b) there is only 30 percent of the inventory which is on the offering, which is not throwing a lot of volumes.
Q: For orbit what are the inventory levels like?
A: 65 percent of inventory currently invested is in pipeline projects and only 35 percent is on the ground. That is the scenario with almost every developer.