View Point: Ashish R Puravankara, Managing Director of Puravankara Limited feels the new regulatory changes and the changing market dynamics are not that challenging for the end user driven markets.
Visualising an industry consolidation soon, Ashish Puravankara feels it is time to invest in technology and make affordable housing the growth driver. Excerpts of an exclusive interview with Ravi Sinha:
Ravi Sinha: How are you coping up with the challenges of market slowdown?
Ashish Puravankara: Beginning with demonetization to Real Estate Regulation Act (RERA) and Goods and Services Tax (GST), all come with their own implications to the real estate industry. The announcement of demonetisation created a sort of disruption in the market that largely impacted buyers’ sentiments. In preceding months, the rollout of RERA and GST followed, which made the buyers tread cautiously with their investments and spending. We believe these initiatives from the government will pave the way in transparency, accountability and efficiency in the ecosystem.
Ravi Sinha: To what extent has it affected your top line and bottom line?
Ashish Puravankara: The same has not impacted us much. Though in the initial phase there was a slight stagnation in the sales due to the overall slowdown and uncertainty among the buyers. But once things started settling down, there was a spike in the customers’ enquiries for our projects. Out of these queries, many were converted to sales deals. A large credit for this performance goes to our focused fiscal planning and preparedness for the structural economic reforms.
Ravi Sinha: What has been the learning of the last 5 years of market uncertainties?
Ashish Puravankara: The transition of the real estate market has changed the dynamics of the sector completely. After the advent, multiple policies and regulation of the real estate industry has seen a paradigm shift with systemic checks and streamlined process.
Post the IT and its revolution, there is a significant rise in the job opportunities which is further fuelled by the emergence of e-commerce and start up culture. This has led to a significant increase in the white-collar migratory population especially in the metros. These demographic transitions have also pushed demand for homes in these cities. But post the initial rush the residential sector witnessed a slight stagnation in the last two years. Realising the undercurrent, several developers have seen the value in diversification of their offerings by venturing into affordable housing segments.
Ravi Sinha: What has been your experience in the affordable housing?
Ashish Puravankara: Realizing the burgeoning need of high-quality, affordable homes in the country, we launched Provident Housing Ltd., (a wholly-owned subsidiary of Puravankara) in 2008 to meet the aspirations of mid-income and first-time homeowners. We have the distinct advantage of being the first organized player to move into the affordable housing sector. Till date over 16.28 million sq. ft. of projects have been launched across 4 Southern cities with over 5000 happy and satisfied homeowners. Additionally, about 6000 units have been planned for new launches.
Ravi Sinha: Has the after effects of demonetization been a real challenge for the sector?
Ashish Puravankara: Demonetization has an impact on the residential market sentiment, especially regarding new launches, sales and enquiries, which dipped a little during the initial phase (of demonetization). The impact was a little hard in those markets which were dominated by investors.
But in the South, specifically the Bangalore market which is primarily driven by end-users, coupled with steady economic activity and powered by a high percentage of the white collar migratory population, remains stable in comparison to other key markets. In fact, post the initial lull, Bengaluru’s real estate market, witnessed renewed consumer confidence in the quarter of January –March 2017.
Ravi Sinha: How about RERA and GST affecting the business cycle?
Ashish Puravankara: As with the implementation of any new policy there will be some teething issues but the long-term views will be positive. Market buoyancy can be envisaged post RERA implementation. The same will not only bring back confidence in the end users but will give the customers better clarity to make an educated decision to buy a home they desire. For the developers in the initial phases, we adapt to the new environment. I believe that RERA will be a game changer for the overall industry which eventually will transform into growing customer and investor confidence.
The role of GST for the Indian real estate sector will be of an enabler as it will create a level playing field for all organised developers in the country. There are multiple benefits for both developers and homebuyers with the GST implementation. A single consolidated tax system brings more clarity, transparency and avoids double taxation which is relevant in the sector where developers and end users end up paying multiple taxes and duties.
Ravi Sinha: How is GST affecting the supply chain of real estate?
Ashish Puravankara: Inefficiencies in the supply chain will slowly decline, resulting in prudent working capital management and better pricing power for all stakeholders in the value chain. Specifically, the impact of taxes on construction materials, cement and steel will come down considerably for developers which ranges between 12-18%. With the rates in place now, the implementation of GST to our business is expected to bring down the project cost for developers, thereby leading to lower acquisition cost for under-constructed apartments.
Ravi Sinha: What has been your understanding about consumer psychograph with these policy changes?
Ashish Puravankara: RERA has now put the buyer in the driver’s seat as exhaustive data is available at the click of a button and is ratified by the regulatory body. The confusion and any allied fears that a potential customer could have are now abated and there is certainty of project completion and most importantly peace of mind. With enhanced transparency the customer confidence will only see an upward trend.
Ravi Sinha: To what extent the slow moving market in the metro cities is tempting you to go for Tier II and III cities?
Ashish Puravankara: While there are immense opportunities in Tier II and III markets, we are not planning to enter any new markets in the immediate future. Currently, our core focus is to strengthen our operations in markets where we exist. The appetite is big in markets like Pune, Hyderabad, Kochi and Coimbatore where we already exist. We are identifying land parcels in these locations to scale up our presence. Having said that, we are also keeping our options open. We regularly conduct feasibility studies, research and identify demographic trends in the secondary market. If we come across any feasible business potential, we intend to pursue the same.
Ravi Sinha: Which are the segments that you find safe bet today?
Ashish Puravankara: Affordable Housing is a segment that will gain momentum in time to come. We are investing significantly in our premium affordable housing arm – Provident. In the next couple of quarters, you will witness Provident launching new properties in existing markets. With the government giving ‘infrastructure’ status to affordable housing projects, this has given the needed impetus to the real estate industry.
Ravi Sinha: What would be the next growth driver in real estate?
Ashish Puravankara: With the RERA-rollout, the real estate market will witness consolidation in the next two to three years. Only serious and focused real estate players will survive. With new launches slowing down, this is a great opportunity for us to invest in technology which will be the next growth driver in real estate.
Ravi Sinha: Moving forward, what is your outlook of the business in the medium to long-term perspective?
Ashish Puravankara: We aspire to evolve into a lean and strong organization, by leveraging on our expertise in the areas of land acquisition, design and innovation, sanctions and marketing. We have set aggressive growth targets for the next five years which we are confident of achieving by implementing concrete measures focused on human capital management, project management and advances in construction technology.
Our vision for the next few quarters is 8-10 million sq. ft. of launches between both our brands, Provident Housing and Puravankara Ltd., with Provident having a larger share of the pie in terms of volume. We could leverage our existing land bank or sign up new deals especially JDs & JVs in the upcoming years.