If interest rates begin a declining trend in 2012 as anticipated, demand for property could go up. Adi Godrej, chairman of Godrej Group and Godrej Properties, believes that the general economic parameters would change in 2012. “High interest rates and mortgage cost are impacting demand. We expect strong revival in the property demand in the next three to six months,” Godrej told NDTV Profit in an interview.

Godrej Properties (GPL), the real estate development arm of the Godrej Group, has reported a rise in its third quarter consolidated net profit at Rs 28.81 crore versus Rs 19.45 crore quarter on quarter (QoQ). The company’s sales for the quarter ended December 31, 2011 stood at Rs 143 crore versus Rs 130.56 crore (QoQ).

A NDTV poll saw Godrej Properties Q3 sales at Rs 143.4 crore, and profit after tax (PAT) at Rs 25.7 crore. The company also announced that Pirojsha Godrej will take over as the managing director and CEO of the company from 1 April 2012.

Milind Korde, managing director of Godrej Properties has resigned but continue as senior advisor.

Godrej Properties has outperformed other companies in the peer group. Over the past one year, Godrej Properties shares rose 12 per cent while the BSE Realty index slumped 33 per cent.

Below is the complete interview. Also watch the accompanying video.

 What is the likely pricing trend for 2012, since developers are unwilling to cut prices and are letting inventory levels remain elevated?
 

I don’t think that the absorption levels are negligible. The sales are still going on all over the country. Also, mortgage companies like HDFC are at good growth. In our case, the sales growth in the first half of the year has been 80 per cent over the corresponding sales of the previous year.


So, there has been a little slowdown in terms of high interest rates and mortgage cost but having passed the season, where people avoid buying new property, we are into the season where people like to buy new property.

Declining residential absorption rate coupled with rise in inventory levels for markets signals a slowdown, would you agree?
 

No. I don’t understand how it can be subdued because if you see the sales of a property development company, they are continuing quite well. If the market was so subdued, then how would there be sales. So, I don’t agree with that.


Clearly, it’s not a boom period. The overall economic situation has its effects. The mortgage and the interest rates are up and having their effects, but in 2012 we see general economic parameters recovering. The stock market has recovered and the rupee has appreciated. So, the economy is showing signs of revival and that will have its positive effect on the property markets too.

What about pricing trends?

Prices aren’t going to crash at all, they can’t come down much. A price is not something a developer can bring down below cost levels.

Would a change in the rate cycle lead to a change in the fortunes of the sector?

Absolutely! Once the interest cycle revives, the economy will revive very strongly. The mortgage rate will come down, which will encourage people to buy more and more. I expect a strong revival in the property demand in the next three to six months.

Bank lending for the property sector continues to remain tight as evident in slowing credit by banks to real estate sector where credit growth has slowed to 10.6 per cent (YoY) in November 11. What could be the way out?
 

I don’t know what’s happening with the credit in the sector as I don’t keep in touch with the credit circle or the general real estate circles. However, I know that our company is able to raise the fund it needs and we will also look to raising equity in the near future.

Would FDI in single brand retail bring the requisite push for rentals and commercial real estate space?
 

Yes! Once FDI in multi-brand retail opens up, it will give even a greater push. Any opening up of FDI will lead to more investment in the country, which will lead to better demand and better economic growth.