Pujit Aggarwal, MD, Orbit Corporation, sees a 20-25% price correction in the distant suburbs of Mumbai. The company has raised Rs 200 crore of convertible debenture from private equity player Rodere Holdings for Orbit High City, which will be 100% subsidiary," he told CNBC-TV18. "Investment to be used to develop township projects in the Metropolitan region."
Anil Kumar, CFO, Brigade Enterprises, said he has not seen any price softening in Bangalore and Mysore.
Excerpts from CNBC-TV18’s exclusive interview with Pujit Aggarwal and Anil Kumar:
Q: What is your own estimate of the property market mood in Bangalore? Are you beginning to see the first pressures of undercutting between builders? Are you seeing any signs of the need to offer discounts to your consumers?
Kumar: In Bangalore, we believe there is very significant demand for end customers. We are not seeing any pressure on prices in terms of price discounts to be offered, with a view to increase our sales. We are still very confident of prices. The prices are reasonable and still have potential for growth in the Bangalore market. We believe an underlying demand for residential continues to be very buoyant and strong in the Bangalore and Mysore market where we operate.
Q: Do you see that trend continuing given the kind of pressure that we are seeing in equity markets, the way real estate stocks are falling at this point, and the kind of consumption risk that gaining more ground?
Kumar: There is going to be a bit of pressure. There are many players in the market. Bangalore is one of the most proactive markets with a large number of players and large demand. So, you are going to see a lot more differentiation and lot more innovative products coming into the market. We do not believe that is going to be lead to a price reduction vis-à-vis large supply coming into the market. There could probably be more supply coming in, which would help meet the large demand that currently persists in the market.
Q: What is the experience on the ground? In the last two months or so, we have seen the wealth effect coming from higher stock prices kind of evaporating rather rapidly. A 25% fall perhaps only at the index level. So, when that kind of wealth effect evaporates it normally tends to show in people being less adventurous in bidding up real estate prices. Are you beginning to see signs of a need to at least stabilize prices or actually lower prices a tad to attract customers?
Aggarwal: There are basically two situations. One, there is a supply side issues where there is a huge amount of supply that is coming in. The second aspect is the adventurous nature because wealth creation has taken place.
Now, because of the supply side coming in, we are finding that NCR, Bangalore, and Hyderabad have seen some softening of prices. Mumbai does not have a very healthy supply. That is where the adventurous nature of the buyer comes into play because of the higher rates and then they want to buy the properties. Over the last two months, we have seen that sales have been low. Most certainly in Mumbai we would see a softening of prices in the shorter-term.
Q: How much softening do you expect in prices?
Aggarwal: It is too early to speculate on those numbers. But it could be as much as 25-30% in the distant suburbs like Vasai, Virar, Thane and those other areas because that is where you have the coupling effect of supply coming in abundance along with the adventurous nature of the buyer.
Q: The fact that the wealth effect has somewhat eroded over the last 2-3 months. You are also venturing into Chennai. We have heard that DLF offers is quite clearly is in the nature of undercutting in Chennai. Are you getting the sense in places outside Bangalore, where you may be venturing, that prices could fall or have already fallen?
Kumar: In the markets where we are entering into like Chennai or Hyderabad, we are looking at specific projects that are more suited and in line with our product diversification.
In Chennai, we are looking at commercial property development along with hospitality product. So, we are not looking at the residential market in Chennai. In Hyderabad, we are looking at the very high-end residential project, where we believe that at the higher end of the products, there is still a persistent demand for properties. We are looking at high priced, integrated projects.
So, when you are looking at different projects in different markets, there are different segments that we address. When we look at different cities, we would rather take a very cautious but optimistic approach rather than launching projects that are not meeting our broad strategies.
Q: Are you trying to say that you have seen no price softening at all in any of the markets you are operating in?
Kumar: Predominantly, all our projects today are in Bangalore and Mysore. We have not seen any price softening. At Brigade, we have not offered any discounts or reduced prices. In fact, even in the early part of 2008 there has been an increase in some of our project prices. We currently believe that the marketing efforts have increased. So, we continue to keep up our sales. But certainly we are not seeing any fall in prices at Brigade.
Q: The other aspect is about execution risk. That is really a function of how fund raising is becoming a problem for real estate companies. People are now looking at debt options at this point. You yourself are making an investment in Orbit High City. What is the outlook there in terms of getting funds for expansion projects?
Aggarwal: We have at Orbit Corporation a shorter risk as far as that is concerned because we are developing about 3 million sq ft of saleable area over the next 5-6 years. But that is very high premium area, which sells for Rs 30,000-60,000 per sq ft. So, that is the premium nature of our development.
We cannot ramp this up by 5-6 times as this was a redevelopment. The fact is that there are a lot of tenants and lot of other issues because of which we cannot extrapolate the development. We have ventured into the premium nature in the Mumbai Metropolitan region, which is developing villas and gated communities that comprises 8-9 municipalities.
So, we want to do that and that is why we have formed a company called Orbit High City Limited, which is 100% subsidiary of Orbit. We have recently raised Rs 200 crore of convertible debentures from a private equity player and that is convertible after three years into equity at the then price.
Q: What is the size of this entire Orbit High City plan?
Aggarwal: As of now it is a little sketchy because there are involvements in 2-3 areas of doing a premium gated community. Typically, we would be looking at doing maybe two or three locations and in each location we would be looking at doing 400-500 units of villas or estate homes of that kind.
Q: And the convertible debentures been raised?
Aggarwal: They have been raised. We have actually signed the agreement on Saturday. So, they would be actually raised over the next few days.
Q: Rs 200 crore is all the funds that you require for the project?
Aggarwal: That is the initial funding that is required for the project. So, that would put us in a comfort zone at least for the next six months.
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