Demand for affordable housing to remain strong: Atul Goyal

Our focus in the affordable and mid-income houses will continue as the market for these two segments remain strong, says Atul Goyal, CEO, Brigade Enterprises. In an interview with Swati Khandelwal, he said GST rationalisation on construction will benefit the real estate industry.

Edited Excerpts: 

Brigade Enterprises has posted strong results in the fourth quarter. There is constant progress in the sales and the same is reflecting in your profits. Do you think this momentum will continue in the next quarter as well?

Yes, the momentum will continue in the future as well. There was a slight hiccup because of the GST confusion, which permits real estate players to shift to 5% and 1%. But the confusion has ended now and there is a momentum in the market. I feel we will be able to maintain this run rate in the next quarter. 

The sector has not moved out of the woods yet and few companies are still struggling to cope up with the challenge. Let us know about the strategy that kept Brigade running and perform well?

See, there are more residential users in the Bengaluru market. Secondly, we have a focus on the affordable and mid-income houses and haven’t launched luxury housing. I think that the market will remain good for affordable and mid-income houses. If you look at the overall market scenario, you will find that there is a decline in unsold inventory in Bengaluru itself and inventory over-hang has come down from 26 months to 15 months. Thus, the market is recovering. 

What is your view on premium houses? Margin is an important factor in your business and how will you maintain it or exceed the current levels?

If you have a look at our financials, you will find that we maintain margins in the range of 28-30% in the real estate segment and it will be maintained. Interestingly, if you look at the affordable and mid-income housing segments, you will find that facilities remain the same but there is a difference in space of the two in terms of square feet, but calculations remain the same. On the other hand, the premium housing segment in still slow and a lot of inventory is available at the present junction. So, they would be launched gradually with a gap. 

You were talking about the inventory levels. Do you think there will be an improvement in it?

Our current inventory level stands around 1 million units at present. But, it stood around 0.9 million units in the last quarter and we were able to sell around 1.75-2 lakh inventories but almost the same number of completed inventories were added to the list. So, there is no change, but we have a special focus on selling the completed inventories. Interestingly, these inventories are in demand due to the absence of the GST charges on it. 

Update us on the ongoing projects and throw some light on the new projects that will be launched in the recent future?

So far, we are focused in the South. Going by our strategy we have selected three major cities for residential projects and they are Bengaluru, Chennai and Hyderabad. Going forward, you will find that the maximum of them will be launched in these three cities only.  

What is your capex for FY20 and how it will be funded?

Our capex mainly revolves around World Trade Center (WTC), Chennai and Tech Garden, Bengaluru, which are our major leasing assets and we set aside around Rs 1,200 crore for it. In addition, we will have a capex of Rs150-175 crore to be invested in the hospitality segment. So, we have tied up for loans for the purpose. We will contribute 25-30% and the rest will be completed through loans. 

Let us know about the areas where the new government should focus to improve the sector’s performance?

GST rates on construction should also be rationalised and brought down. For instance, 28% GST rate is slapped on cement which is a major part of the construction business and accounts for 10-12% of the construction cost. So, rationalisation of the GST rates will benefit the industry.