However, he does not see prices to drop from this point as input costs have been high. Supply-side needs to improve than reducing prices to increase demand, he told CNBC-TV18.
Also read: We need to look beyond gloom & doom, says Mukesh Ambani
Below is the edited transcript of his interview to CNBC-TV18.
Q: What has been happening with the inventory levels? Channel checks tell us that they are back to 2009 levels. Have you seen a slowdown in property enquiries and sales?
A: On the backdrop of economic slowdown, no sector is left out. We have seen sluggishness in the offtake especially on the commercial and on the residential side. But in the mid segment or the lower segment typically Rs 20 lakh to Rs 40-50 lakh range there is still offtake.
Yes. There has been sluggishness as people are not really sure whether it is a right time or whether they should hold on their decision by another three-four months.
What the realtors are looking at is the festive season, which is just about to start in couple of weeks. We hope that to push our inventory by giving some attractive offers or even discounts; doing every aspect that requires for the festive season. Typically, this has been the scene year on year.
You have seen typical offers that come from the developers and we push the inventory. So that is the period that we are looking for in next three-four months will be a very watchful period and we have high hopes from that.
Q: In any industry prices, are decided according to demand-supply situation. It does lead to some kind of arrangement of prices. Why are we not seeing real estate companies actually bring down prices say by 10 percent or so to attract demand?
A: Pricing is a very subjective issue. There are no clear cut guidelines on the pricing as to what constitutes the cost for each developer. At the same time, if you look at the past trends in any raw material, things have gone up. There has been inflation all around; land costs, material costs, labour costs, risks have gone up.
There have been project delays, approval delays. The cost of holding the inventories have been there and there is not enough funding available in the market either. From the RBI side banks have been cautioned not to lend to real estate in the manner that it used to be in 2004-05.
I am not saying that there has to be liberal funding but then you have to separate the men from the boys. You cannot put all real estate companies in the same bracket, people who are doing work on ground, delivering even if they are subjected to such financial crunch, there will be shortage of supply.
There is a question of demand and supply. Let us also think that by curtailing all these things, the supply is also getting curtailed. Demand is there but supply is getting curtailed.
Our focus should be on improving the supply side rather than thinking that the demand is not there or how to increase the demand. There is no dearth of demand in the price bracket at Rs 20-50 lakh in any city. The supply seems to be constrained factor in all the cities and that is what needs to be done.
Either push the financial sector, financial reforms, REMF, bank funding, open up ECBs for real estate where they can get funding at an attractive rate and for a longer period as real estate generally requires. If those things are taken care of, the pricing will cool down or remain at a level which is affordable.
But at this current level and with all these constraints I doubt that the real estate prices will come down. We are in a period where we are looking at a new standard or a minimum threshold for the real estate prices to get set.
Q: To what tune will you provide discounts during festive season? Once you provide these discounts, what will be the kind of price correction?
A: Discounts is not price correction. Discount is a timely offer for a month or month and a half typically during Navratri or Diwali. You will see typically 2-4 percent or 5 percent in different territories people or developers who are stuck with a lot of inventory will try to push more stock and give a higher discounts over a particular period.
Developers who aren't very comfortable, who don't have an inventory overhang; I don't think they will push that stock at a discounted price. So it depends on developer to developer.
Typically during the festive season, there are discounts and offers like free-parking or free club memberships to attract the customer and increase the sales. It is considered to be an auspicious period and people generally take decisions during that period to make long-term investments.
Q: In particular for Ansal Properties, in Q1, you saw a sharp decline in your sales booking; your volumes have slipped a bit on year on year basis and realisations have come down. How do things stand on the sales booking volumes as well as on realizations in Q2?
A: On year-on-year basis, Q2 will be very much comparable to what it was last year. Typically Q2 is a very lean period in real estate. You don't see much sales happening. Q3 becomes the focus point. Q2 we will be closing at around 2 million square feet for and the realisation and sales value by end of September we will roll out the figures.
But, it will be very much comparable to Q2 last year. The sales in terms of volume dipped in Q1 because we did more built-up sales than just plotted sales. And last year there were a lot of plotted sales that happened and they have a nature of getting absorbed very fast.
Built up sales take time and we need to push the sales in the market. Realizations have gone up on a year-on-year basis in the non-FSI section. There are two sections, one we have our master developer where we sell FSI and the other one is the built-up segment.
In the built up segment, the average realisation has gone up and on the FSI the average realisation has remained stagnant and the quantum. Therefore, the overall average realisation has moved a little bit.
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