In an exclusive interview with Moneycontrol, JC Sharma, vice-chairman and managing director of Sobha Group, talks to Vandana Ramnani about the challenges faced by the company during the pandemic, new residential trends that have emerged with the focus on work-from-home, how sales are almost back to pre-COVID level and the company’s future plans.
While the first quarter of the year was “difficult" for the real estate sector on account of the outbreak of the COVID-19 pandemic, the festive months have been “relatively better” than what they were in 2019, J C Sharma, vice-chairman and managing director of Sobha Group told Moneycontrol, making it clear that the company’s operating cashflows in the first half of the year were in excess of Rs 2.2 billion and that the company “does not foresee any further capital requirement.”
The company achieved a total sales volume of 8,91,700 sq ft valued at Rs 690 crore, with an average price realisation of Rs 7,737 per square feet during Q2-21 despite lockdown being imposed in Bengaluru in July and without any new project launch during the quarter, he said.
The first half operating cashflows are in surplus and in excess of Rs 2.2 billion. We do not foresee any further capital requirement. EBITDA is at Rs 1.28 billion with the margin at 23 percent, he noted.
“We should be in a position to do 2 mn sq ft of new sales in the second half this year. Construction work too is back to 90 percent of the pre-COVID level across our sites,” he added.
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Low-interest costs and huge savings among Indian households (especially those who have managed to save their jobs), thanks largely to the focus on work-from-home on account of COVID-19 – they will all utilise this amount to buy a better, larger-sized house, he told Moneycontrol.
“People today are spending less on going abroad, on marriages, on parties – somewhere that money is being conserved and is going towards building capital which ultimately will be used to buy a house,” he said.
Despite the challenges faced during the pandemic, the company has been able to sustain and maintain the sales momentum.
“We did about 1.5 lakh mn sq ft in the first half this year, whereas we did on an average 1 mn sq ft at the beginning of last year and roughly 2 mn sq ft in the second half of last year. We should be doing better than last year this time around. With sales picking up during the festive season, we should be able to do 2 mn sq ft of new sales in the second half this year,” Sharma told Moneycontrol.
On project timelines
The impact of the pandemic has been more visible on production than on new sales. With social distancing norms in place and strict protocol to be followed at construction sites on account of COVID-19, production has been impacted more than the sales.
RERA has provided for a six-month extension in timelines and “that is a good enough period to complete our projects. In fact, many of our projects are falling within the original RERA timelines or the extended RERA timelines. For projects, where we utilise precast technology, we may not even have to avail of the extended timelines. In other projects, we may utilize the extension offered but we will certainly not go beyond these timelines,” Sharma said.
The company is operating in close to 20 cities. “In most cities construction work is back to about 90 percent of the pre-COVID levels,” he said.
On new launches
Projects completed by the company located across seven cities are spread across an area of 58.74 mn sqft. Under construction projects are located across nine cities and the total developable area is 38.52 mn sqft. Forthcoming residential projects are located across nine cities and have a total super built-up area of 14.22 mn sqft. This includes the proposed commercial projects in Bengaluru with a total leasable area of 0.36 mn sqft.
There are around five projects planned for this financial year spread across an area of about 4.5 to 5 mn sq ft in Bengaluru, Thrissur and Chennai.
“We have launched a new project in Bengaluru during the pandemic. Another project on Hosur Road has been approved and we hope to launch it in this quarter itself. Application for another project is pending with RERA authorities and we are waiting for approvals to come through. We hope to launch one project in Chennai by the end of this quarter or early next quarter,” he told Moneycontrol.
A new project in Thrissur is expected to be launched in January 2021.
The project pipeline in Delhi NCR stands at about 2 mn sq ft.
“We may launch one more project in Delhi NCR but that may slip into the next financial year. It is located in Gurgaon and is in the advanced stages of construction. This is part of the Karma Lakelands project spread across 25 acres on NH 8. We are in the process of launching close to 1.73 mn sq ft,” he said.
Another project will be launched in the Badarpur area in Delhi. “This will be spread across an area of 1.03 mn sq ft and is likely to be launched in the next financial year,” he added.
Bengaluru’s contribution to the total sale value was close to 58 percent followed by Kochi at 17.21 percent and NCR at 11.02 percent. The company has projects in Chennai, Thrissur, Pune, Coimbatore, Kozhikode, Mysore and Gift City in Gujarat.
On house buying trends during the pandemic
Just as consumers have moved from feature phones to smartphones, from small cars to mid-end cars, from single-screen to multiplexes, from railways to air travel, they are also in the process of migrating to better and larger homes thanks to the focus on work-from-home culture.
“Interest costs are at the lowest right now which means that affordability has gone up. About 18 percent of people are buying homes in the range of Rs 2 crore to Rs 3 crore; about 13 percent are buying homes that cost more than Rs 3 crore and about 18 percent are buying homes less than Rs 1 crore,” he says.
People who are buying homes below 30 years constitute 18 percent of the buyers, people buying homes between Rs 1 crore to Rs 2 crore are largely in the age groups of 30 years to 50 years. People buying above Rs 2 crore are those who are above 50 years of age, he explains.
Overall, it is the 3BHK unit which is trending during the pandemic, largely on account of work-from-home. “The format is selling more and has more enduring resale value,” he explains.
Another trend observed during the pandemic is that most Indian households are nuclear and yet not nuclear. “If children buy into an integrated housing complex, their parents too buy a separate unit in the same complex and that is emerging as a new pattern,” he says.
In the case of Sobha Group, 49 percent of the buyers were from the IT and ITeS background; 19 percent belonged to the non-IT category, business and entrepreneurs accounted for about 7 percent, medical and pharma were around 4 percent and the rest were 21 percent.
As many as 73 percent buyers took a bank loan to fund their purchase which the remaining 27 percent were self-funded.
The approval process should be made faster, says Sharma. “This is essential to ensure that the project timelines are adhered to.”
“The system of charging GST too should be simple and straight forward,” he said.
And finally, there should be more tax incentives made available to buyers wanting to purchase a house.
“Why must developers be forced to absorb a higher input credit cost when most construction items are charged 18 percent GST, which in any case leads to increased costs,” he asks.
On the income tax front, why should there be a restriction on IT benefits? “There should be no limit on tax exemptions. Once that becomes an incentive every person who does not own a home would want to have an effective income tax hedge and would buy a home. That would mean the highest possible employment and growth in 250 related industries that depend on real estate,” he added.