‘People are not buying enough property’

Buyers must do due diligence before buying property, says J.C. Sharma of Sobha Developers. With property sales and prices stabilising in most markets, this is perhaps the right time to look at what may be in store for the coming years. Business Line spoke to J.C. Sharma , Vice-Chairman and Managing Director, Sobha Developers, a Bangalore-based listed real estate company, who shared his positive outlook for the sector — not just in the metros but also in tier-2 and tier-3 cities.

Excerpts from the interview:

What will be the real estate growth drivers in the coming years?

The fall in interest rate will certainly provide a boost to the industry, by reducing the cost of borrowing. Food inflation coming under control augurs well for interest rate cuts.

The improvement in overall GDP due to macro commodity price changes and economic policy changes will also help. Our economy is linked to the US economy and not so much to Europe or China, so the up-tick in the US economy is also positive.

What is the mood of the property buyers currently?

People are not buying enough. The actual users shouldn’t be complaining as the interest rates are declining and the prices are also under control. With Rs 18,800-crore revenue, Sobha is the largest real estate developer in South India and the third largest in India. I honestly don’t think the Indian real estate market is so small. Many buyers who have the financial means and ability to buy a home, are still not buying.

Developers are venturing out of metros and launching projects in tier-2 cities. What is your experience on profit margins in smaller cities?

We have a large and successful development in Thrissur with over Rs 150 crore in sales last fiscal, with an average realisation of about 5,000 per sq. ft. We operate on the model that construction costs are in a certain range, in small cities and metros. The cost of land decides the price and we operate with a base operating margin of 35-40 per cent. The overall profit depends on buying land in the right location, at a good price and holding it for a number of years. Using this model, we find even smaller cities offer the same margin as metros. The things to consider in small cities are the volume of sale and the velocity, which are generally lower than in the metros.

What do you think are a builder’s responsibilities to a home buyer?

For an average individual, getting land and building a house is near impossible, due to title and other issues. Group living, such as in apartment blocks, has become the only choice. Developers should not disappoint the buyer. Features such as club house, landscape, pool, back-up power, kids’ play area and car-parks add value to the property. Kids need an outlet for their energy and, with the size of school playgrounds decreasing, providing a secure place to play is important.

How does Sobha identify a location for launching a project?

We look at the infrastructure development plans — highways, metros — near a locality.

As people want to live close to where they work, the plans of companies setting up offices and IT parks in an area are also considered. The presence of schools, hospitals and other facilities make a neighbourhood more desirable.

Where do you think property demand will come from – city centres or peripheries?

I think demand is universal. Even in central business districts, those living in older neighbourhoods may want to upgrade to larger homes, with better amenities.

However, they may want to stay in the same area due to neighbourhood connections and familiarity. So, offering property choices within a one to two km radius would create good demand.

Can you share the profile of Sobha property owners?

NRI’s form 24 per cent of Sobha’s home buyers and this has remained reasonably steady in the last three years. Age-wise, 31- to 50-year-olds form 75 per cent of buyers. About half the buyers self-funded the purchase without opting for bank loans.

Do you feel there are still issues regarding accounting methods of listed players?

There were initially variations in revenue recognition, but the CA Institute has brought consistency in this regard.

It makes it easy to compare companies on various metrics. I feel there is still not much recognition of developers following good practices and no punishments for erring developers.