Rera to spur M&As in real estate: Pirojsha Godrej

Pirojsha Godrej, who took over as executive chairman of Godrej Properties early this year, believes that Real Estate (Regulation & Development) Act, 2016 will bring demand back to the sector. In an interview with Ateeq Shaikh, he speaks about the company’s projects, affordable housing, the impact of demonetization, while also voicing some concerns about Rera and Coastal Regulatory Zone (CRZ) norms.

What are your views on Real Estate (Regulation & Development) Act, 2016 (Rera)?

Rera is a very positive development overall. In the medium term, it is certainly going to improve consumer confidence. Some of the problems plaguing the sector are that a lot of developers are unable to meet commitments, customers have terrible experiences, which has created a lot of doubt about the sector as a whole. So this Act holds developers accountable for performance, which I think will go a long way in improving consumer confidence, which in turn would help in bringing demand back to the sector. The only potential negative is seeing how this actually gets implemented and if there is clarity at the state-level for timelines for the regulator formation. In states like Maharashtra, it is already in place; for others that isn’t the case. There is going to be some amount of short-term delay, hopefully not very much, but quite a bit of medium-term benefits.

What kind of short-term delay?

The process of being able to launch a project now doesn’t only involve getting all approvals, but also getting registered with the real estate regulatory bodies in each of the states. But in most states, those aren’t in place yet. Even in case if a developer wants to register, there is no place to do that. So hopefully, in the next few months or weeks, this gets sorted out.

How will Rera impact Godrej Properties?

We believed some amount of regulation was required in this sector. One of the impacts is that a lot of developers will exit the sector; there’s a quite a bit of consolidation underway for the last 4-5 years. This certainly adds some impetus to that. I do think that a lot of developers won’t feel comfortable in operating in this kind of a regulatory environment. So, there will be opportunities to partner with such developers or jointly develop some land parcels and it is something we are looking at.

How did demonetization affect your business?

It didn’t directly affect us in any way. The indirect effect was that there was a lot of media speculation that this would result in a huge crash in real estate prices, etc. We never thought that is realistic, and that has really not happened. For the first month or two, a lot of customers were adopting a wait-and-watch stance, but that effect is behind us.

Which of your projects are doing well?

Our main priority is our top four markets, those are the strongest performing for us – Mumbai, Pune, NCR and Bengaluru. The one project we are very excited about and it has really done well is our Vikhroli (Mumbai) project called The Tree. We just got a new phase of it called Godrej Origins launched a couple of weeks ago. It has done extremely well. In the last six months, we entered Noida. We have a large township project in Greater Noida, even that has done extremely well. We have sold over 700 homes in that in the last 6 months.

Other developers are struggling, but Godrej Properties isn’t. Why so?

There are other developers who are doing well as well. For those who have strong brands and are getting their product strategy right and getting into good locations, demand continues to be quite positive. For developers who either don’t have a track record or whose track record isn’t very good, I think there is a very major challenge currently.

There are developers with proven track records facing a liquidity crunch, as a result of which they are looking at affordable housing projects.

Affordable housing segment will do good with the new incentives in place. There is a lot of interest in the industry. But yes, developers are very differently positioned currently. There are developers who are doing quite well and are looking at this current period as an opportunity to grow their portfolios. There are others who are quite strapped with their current liquidity situation and trying to work through that whole process and the others who are in more significant difficulties. I expect the first two brackets of developers to come out of this, and obviously, for those who are in a really bad shape or are unable to perform, I think they will be slowly moving out of this sector.

Do you have any affordable housing plans?

According to the new definition of sizes of below a certain level, we already have many projects that would fit that, like the recent launch we had of Godrej Greens (in Pune) as many apartments would be in that size. So, affordable housing is a loosely defined term as well. Our main focus will remain mid-income housing, some of it may qualify for affordable housing benefits but that would remain.

Union ministry has some plans to ease Coastal Regulatory Zone (CRZ) norms.

Environment protection is an extremely important objective for a country like India that is rapidly developing and already has fairly significant concerns on the environmental front. But I think smart urban planning is also important. I don’t think CRZ is a well-thought through rule. In my opinion, it does very little to protect the environment but does quite a bit to hamper the development of the city and raise real estate prices in the city. So, I think modification is welcome. Why shouldn’t there be development near a coastline as long as the development is thought through and done in a proper manner?

There are even plans to ease out on no-development zone or open those lands for development.

There are plans to do all sorts of things. One has to look at the specifics of what that means. There are some no-development zones which might make little sense, like the salt pan lands. I don’t think there is any environmental benefit from maintaining them in a certain way. So one size fits all approach doesn’t make any sense.