Pain in India realty scene spells scope for Godrej

Bloomberg

For Pirojsha Godrej, who leads India’s third-largest developer, the pain in the real estate market is spelling opportunities.
The son of billionaire Adi Godrej and chief executive officer of Godrej Properties Ltd. expects the firm’s best year ever for new project acquisitions as sluggish sales and a newly passed regulatory bill forces smaller developers out of business. The real estate arm of the Godrej conglomerate joins a select group of large developers weathering the downturn, as smaller players are struggling with unsold inventory and a funding squeeze and buyers flock to brand-name firms that can successfully finish projects.
“Conditions aren’t going to get any better than this; there is some amount of distress with many banks taking over projects, some of the promoters have lost control of their companies,” Godrej, 35, said in an interview in his Mumbai office. “We have a strong ability to invest capital at this point and we are very happy with our sales in a weak market.”
Developers without scale may struggle to stay afloat as new regulations passed last month place costly restrictions on them, said Godrej, who estimated that only a few hundred of the few thousand developers will survive the tough conditions. Godrej, by contrast, is seeing brisk business, with residential sales more than doubling in the quarter ended Dec. 31 from a year earlier.
“Weaker developers are facing a harder and harder time both in terms of accessing customers and capital at reasonable costs,” said Godrej. “With the real estate bill coming in, it will only increase pain for them.”

Regulatory Bill
The introduction of the new bill requires more disclosure from developers and penalizes them for failing to do so or attempting to change the terms of contracts that have been agreed upon.
Developers currently pre-sell homes to buyers at lower prices before obtaining approvals, to fund land acquisitions and generate money to complete other projects.
With the new law, they will be allowed to sell only after getting all approvals, and have to use 70 percent of the proceeds to finish the project. That will restrict their ability to divert funds to other unfinished development and crimp cash flows.
India’s real estate market has been sluggish as the inventory of unsold homes rose across all major Indian cities, according to data from Liases Foras Real Estate Rating & Research Pvt.