Demonetisation: Bookings are deferred but enquiries & site visits stable: Sobha

As of now, there haven’t been any reports of land prices coming down, at least in the south, says Sharma.Below is the verbatim transcript of JC Sharma’s interview to Ekta Batra & Prashant Nair on CNBC-TV18.

Ekta: We do understand majority of your clientele or maybe around 80-90 percent is from the salaried class. So, you don’t have much exposure to the informal sector per se. However, how is business been post November 9 and is there a delay in enquiries and hence what is the impact that you are anticipating in terms of volumes in second half of this fiscal?

A: As far as demonetisation is concerned, it is impacting everyone because there is a cash shortage and in India businesses runs on cash as a transaction for so many things that we use and there is a restriction and there is rush to deposit the money. However, in this environment we are seeing that there will be a short-term structural change and the demand will get impacted.

We believe, from the enquiries whatever we are getting, the numbers of enquiries have remained stable or rather they are more. The site visits have also remained stable but people who are coming at the site because of what they are reading, because of what we are hearing in and around the environment, they are deferring their decision.

However, they could have taken the decision but because of the enquiries what we generated in the first week or in the last month, they have also deferred and the new guys also, they are coming, they are enquiring but they are not taking the call. It has had a varying degree of impact in my view throughout India in double digit; somewhere maybe 10 percent, somewhere maybe 20 percent, or somewhere it may be more.

However, when we look at second half as a whole, this move will help in bringing out the following benefits. A) the Reserve Bank of India (RBI) and most of the banks, they are unanimous that they will be able to reduce the interest rates to the home loan buyers, B) the government also is looking ahead with the affordable homes and likely to come out with certain benefits, C) On February 1 the government will be presenting its Budget and there we can expect some income tax reduction also. So, our belief is that in this environment if you can manage your business for this quarter maybe from the next quarter onwards things will start looking up.

Ekta: We know that real estate is obviously the biggest market where black money works especially in big cities such as Mumbai and Delhi and especially for high-end residential purchases, there is always around 50-50 black money kind of element which takes place. So, in your sense how much of that has taken a hit, how many large residential transactions possibly have been called off, secondary market transactions has been called off?

A: We do not track the secondary market. What you are hearing, we also keep hearing. However, as we keep sharing our data which you are aware of that 93 percent of our customer base on an all India basis, they are from the formal sector. Most of them, they are salaried class, most of them are eligible for the home loans and we have not seen any kind of delay in making payments by these people or otherwise showing any kind of a panic.

Prashant: In your assessment, you have been in the business a long time; you have a bird’s eye perspective, how much can prices go down? Sometimes people stopping short and not making bookings in the hope that prices will fall can turn into a self-fulfilling prophecy. How much do you think prices can drop in the south, in west, in the north?

A: Let us start with the south and let us start with again the input cost. I do not think that there has been any media report also and I can also vouch from whatever little bit I have heard that the land prices have not come down. Number two, while in our case, most of the contractors and the workers we pay through real-time gross settlement (RTGS). However, most of these contractors, they have to open the accounts of their workers which means they have to comply with the labour laws and the cost of that compliance and the Minimum Wages Act, once it starts getting applicable to such workers, the labour cost also will go up.

I am also sharing another news that in case of steel, the primary steel manufacturers, they have grabbed this opportunity even in this declining demand environment by increasing the prices. So the prices, pre-demonetisation used to be about Rs 32,000-33,000 per metric tonne. Now it has gone up to Rs 35,000 plus metric tonne. So, input cost here also has increased and if you look at the margins of most of the real estate companies, those who are listed, except on their lease-rental income, on the pure residential income, most of them, they earn below 10 percent profit after tax (PAT) universally. So under that circumstance I do not foresee that the developers have any kind of levers left to reduce the prices of the product. If at all, the reduction will happen, it will happen in the form of, in my view, A] income tax rates, B] interest rates.

Yes, when we go to the north, we go to the other part and the secondary sales, what I was hearing and what we have been talking about, this secondary buyers and sellers we do hear that when they do the transactions, the real value versus the value at which these properties are being registered, there used to be some kind of a gap which government is conscious of and maybe they will get impacted. In our case, it is primary sale, the guideline values - government on a yearly basis keeps increasing and in that environment, I do not foresee that you have a higher guideline value and a lower selling price. Again income tax department will come and try to disturb you.