Impact of currency ban on property prices exaggerated: Godrej

Adi Godrej, Chairman, Godrej Group is not overly worried about the demonetisation move negatively impacting the economy and businesses over a longer-term. However, the most important thing for the government is to address the need of cash shortage that small businesses are facing, which so far has not been attended to, says Godrej.Demonetisation is not going to impact property prices --  both land and houses in a large way, says Godrej. “Impact on property market is exaggerated,” says Godrej in an interview to CNBC-TV18.in an interview to CNBC-TV18.

He is slightly worried about the fact that government is not planning to come out with Rs 1000 denominated notes because that could create a huge gap between Rs 500 and Rs 2000.

He also believes that the combined effect of goods and services tax (GST) and demonetisation would in fact add to the Gross Domestic Product (GDP) and by next-year we would see double-digit GDP growth. GST will be positive for consumption because the overall taxation will be lower than the current rates.Below is the verbatim transcript of Adi Godrej’s interview to Anuj Singhal and Latha Venkatesh on CNBC-TV18. Anuj: What is the ground feedback, have things improved from say, the first week? A: There is a little more cash coming in but it is still not sufficient but one of the problems is whilst the government is attending to the cash shortages consumers are facing and trying to correct it they are not yet fully addressing the cash shortages small businesses are facing. For example, wholesalers etc, especially in the remote areas, small towns, villages, some villages don't even have banking facilities. So, business issues have been less attended to than personal consumer issues. But hopefully, it should be resolved. But I was sorry to hear from Finance Minister Arun Jaitley - I don't know if I heard it correctly - that he is not planning to issue new Rs 1,000 notes because the gap between Rs 2,000 and Rs 500 note will be too big if there are no Rs 1,000 notes. Latha: You all must be sourcing a lot of material, perishable goods, foodstuff. How is the movement over there, has it gotten a little better, regularised? A: No, there are still difficulties, there are transport difficulties. Transporters are facing cash shortages to be able to pay workers. So, in several cases things are a little on the slow side. So, the government needs to pay a lot of attention to small business needs of cash now in addition to the consumers' need for cash. Latha: What is the sense you are getting for other business, like soaps, your fast-moving consumer goods (FMCG) products? What are your stockists telling you? A: Again there the wholesalers sales are extremely low because the cash situation is pretty bad, so those are also affected. But in those cases some channels were working well, some channels are not working well. Hopefully it will improve with time. But a lot of attention needs to be placed on the issues small businesses I said are facing. Latha: I assume you and your stockists would be working a lot on credit since you all know your customer and your stockists would know their customers very well. What is the sense you are getting in terms of how long do they see this problem persisting. Are they getting a sense if it is only one week we will hold out. In terms of time how long is the pain? A: It is very difficult to say. I don't think there are any estimates. We don't operate on credit. So, normally Godrej Consumer products, our FMCG company operates on negative working capital. We do not give credit. Latha: What I meant was you all could if you want because you all have a long standing relation and it is only a question? A: Yes, one could but you need that much more credit suddenly generated. You can't change your financial needs very suddenly, that needs a little time. Latha: Your other businesses, furniture, property in particular, do you think that will be dislocated for a little longer? A: Property is very difficult to tell because property is something you can only judge sort of month by month or quarter by quarter and I don't think property will be affected for long especially if the economy picks up well as is expected. So, people are exaggerating the effect on property. Secondly, most top notch builders who we compete with and most of the kind of clients who deal with us do not deal in black money. So that shouldn't affect us. Anuj: But for the industry we all know that it has been crippled because of this demonetisation? A: It is possible but then as far as we are concerned it might even help us. Anuj: It might help you in the long run but in the short run there will be clearly an impact? A: No, anybody who needs a flat from say, somebody like us and writes a cheque out for it he will continue to be able to do so. So, they are getting the salaries, they can get a loan from HDFC etc. Anuj: But their thought process or thinking about the property market might be now coming down. A: Yes, but every now and then when something hits people say property prices will come down. Property profits are so low currently in the market that I don't see any possibility of prices coming down much. Latha: If you could just elaborate that? You said the impact on the property market is being exaggerated. It is routine in inner city in Mumbai and I understand Delhi, I am not eyewitness to that, people are asking you 60:40 black. Those guys have to drop their prices, isn't it? There isn't anybody with that ability to pay that 60 percent. A: Yes, but they can change their mode to full white, number one. Number two, those people are usually involved in resale of flats. Latha: These were more redevelopment flats I heard, I wouldn't be aware of the others. A: Yes. Anuj: The one issue that we are discussing is that maybe this whole demonetisation could have negative impact on land prices and in that case as you said property companies don't make too much profit, at least that is what you are saying, but that could give them some margin if land prices coming down and ultimately trickling down to property prices as well? A: It is possible but land is such a short supply item in India that I doubt even if it does take place it may be for a short period. You must understand that India is by far one of the most densely populated countries in the world. We are more densely populated than Japan. Land is an acutely short item in India and getting shorter and shorter. So, I doubt if land prices will come down even in the medium term. But there could be few transactions which might be a little lower price than earlier but I doubt it.Latha: If you can give us some idea for your consumer products business, how much might the shortfall be. We are into end November. So, now you have a good idea of this quarter. How much might the shortfall be in consumer business, how much might the shortfall be in property business? A: In Godrej consumer products I don't expect too much of an effect at the end of the quarter for several reasons. One is half our sales come from outside India. Two, we have different channels of sales. So, people are trying to - one channel is a little low try and make up in the other. But it is of course too early to say. But I don't expect too much of a negative effect. In Godrej Properties to my mind it has very little to do with this because where you book your sales and profit is how much of a past sales you have completed in construction. The new sales you make if they are a little lower that affects you after four or five quarters. Anuj: A lot of people believe with the combined effect of Goods and Services Tax (GST) and demonetisation consumption is in for a bit of a trouble over next 3-4 quarters. Do you think that is the right way to look at it? A: No, for two reasons. One is GST as it is being formulated will be extremely positive for consumption because by and large the rates of GST will be lower than the present taxation rates. So, GST to my mind from day one will help consumption. I don't see any shortfall in that. Even in demonetisation it should get sorted out well before the next financial year when GST hits. We must remember that both of them are effective, it will add considerably to our GDP growth rates and my personal view is that if properly handled next year we could be in double digit GDP growth rate. And that could be tremendous for demand of all sorts.