Expect FY18 to be significantly better year: Sobha

In an interview to CNBC-TV18, JC Sharma, VC & MD of Sobha spoke about the latest happenings in his company and sector.

He said that FY18 should be much better than FY17.

Prime Minister's Awas Yojana is a big positive for the sector, said Sharma.

Below is the verbatim transcript of the interview.

Anuj: How are things looking for FY18?

A: I think FY18 should be significantly better year and prima facie it should be on the back of, in my view, the following positive developments which have happened - 1) Prime Minister's Awas Yojana, we believe there is lot of demand we are likely to create with Rs 235,000 to be given to them, if they borrow for the first time and buy home for the first time 2) the transition from non- Real Estate Regulatory Authority (RERA) compliant to RERA compliant companies 3) the goods and service tax (GST) and prima facie whatever we had witnessed, the demonetisation impact, it seems that impact is gone from almost all the regions. So net-net there are only positive surprises for the sector as we move forward.

Latha: Are you already seeing the banks ready with all the paraphernalia for allowing Prime Minister's Awas Yojana to kick off. Have you got any of the first demands from them?

A: Of course yes, in fact this month we are doing two road shows at our two projects in Bangalore along with HDFC supported by National Housing Bank (NHB), where a borrower will be confirmed whether he is eligible for this benefit or not and likewise at all the centres, most of the non banking financial companies (NBFCs) and banking sector are now well equipped. We have already communicated this to our members through NHB who have explained this scheme in detail. Money is made available within 7-15 days from the day a borrower decides to take a home.

Sonia: What could this do to your own pre-sales? In FY17 you managed to do about 3 million square feet, you couldn’t meet your target but nevertheless from this 3 million square feet base how much do you think you could grow to in FY18?

A: These things we will be giving only after our financial results are being approved in the next quarterly report. However, big picture is that as far as the volume growth and the value growth is concerned since the demand is picking up in all the regions and in all the segments both volume side as well as the value side, we believe that we should be doing better than what we have achieved in financial year 2016-2017.

Anuj: One feedback that we have got is that over the last three or six months a lot of strong real estate companies have used post demonetisation weakness and sentiment to acquire land banks. Would that be true for a company like Sobha as well or can you confirm if that has been the industry phenomenon?

A: As things stand today, post RERA in any case, the guys who do not have the required strength to continue with the construction activities they will be required to align with the other stronger industry players. As far as we are concerned, we continue to carry large approved unsold inventory which we believe should be good enough in the regions where we are operating for the time being. But, we cannot rule out such possibilities as we move forward.

Latha: Are companies RERA compliant and non-compliant?

A: Projects.

Latha: What I am saying is I am locked into a housing loan and a project and it has been delayed two years, so is this retrospectively, do I take a consumer compliant to RERA or is it that it is only prospectively project wise – I didn’t get this RERA compliance point that you are making?

A: If the company does not have the required financial strength and they have already diverted your money to some other projects then the company also need to do something - that is a big picture. The next issue is that as far as the sale agreements are concerned, most of the developers today from their side if the project is delayed they are not paying the compensation and they are not getting the grievance addressed immediately. Once you put all such things in the website, you are exposing yourself, whatever deficiencies in the project or in the company is for getting the number and for being able to sell your projects you need to disclose your weaknesses that is the point.

Latha: That is prospective not retrospective?

A: No, it is not prospective; all the on-going projects will be also covered. If you go by the Andhra Pradesh RERA law then they have defined on-going projects and some four categories but prima facie the Central Government is very clear that all the on-going projects where occupancy certificate has not been received will have to come under the RERA compliance.

Sonia: Just a couple of more issues that would make it a bit difficult for this transition to RERA, one is that developers could need to borrow capital now at a higher cost right, because pre-launches will not be allowed ahead of enrolment. Also you have the onerous RERA compliance could make the launches a bit more delayed as well so timelines could be stretched, there are issues of moving the money into the escrow account which could also further delay the launches. Don’t you think that could become a bit cumbersome for companies including organised players?

A: It will depend from company-to-company where exactly they are going to stand from next month onwards, but prima facie I do agree with you it will be at a cumbersome transitional process. Hopefully, technology should allow us to transition it smoothly and because of that I also do believe that somewhere the supplies which otherwise is available to a gullible customers it will evaporate which will allow relatively a stronger player not only to transition but to cater to its segment more powerfully.

Sonia: One more question on Prime Minister's Awas Yojana - in the affordable housing space you have said repeatedly in the past that you are looking to make a bigger entry but you haven't given us any kind of big timelines or what kind of investments, how much you would be looking to do. Can you give us any concrete data?

A: Here there is no investment required. Here you have your ongoing projects because only two criteria are required to be understood - 1) project's size should not be more than 110 square meter carpet area 2) household individual income should not exceed Rs 18 lakh per annum where unmarried are also included as a separate entity. So a guy is eligible to borrow up to Rs 70 lakh to Rs 1 crore and still he can get Prime Minister's Awas Yojana benefit of Rs 230,000 as an incentive to buy home.

Latha: Is this a very large number of people. When do you see it being big enough to make a big difference by FY18? What is the volume that can be possibly sold?

A: If you look at the recent data which the Parliament was provided, the so-called economically weaker sections (EWS) scheme has not been well, housing for all. Now they have redefined all the schemes under EWS, lower income group (LIG), middle income group 1 (MIG) and MIG 2 category. This, in my view, constitutes almost 80-85 percent of the total stocks today which is available in India where a person who is going to borrow will be getting a benefit between Rs 230,000 to Rs 267,000. So the impact should be far and wide. The budget is only Rs 2,500 crore for this year but whatever we hear from NHB; there is no constraint if demand is higher.