In an interview with ET Now, MR Jaishankar, CMD, Brigade Enterprises said that some hiccups are expected initially on RERA but it should settle down over a period of time. Edited Excerpts:
Prima facie these numbers are looking very strong. Is this largely because of the fact that there was a base effect same time last year?
It is generally the result of past year’s work and also improved product mix for whatever we have done. We are hopeful of continuing this in the coming year, though may not be on a quarter to quarter basis.
In the coming year, overall it should be good. With the government coming out with affordable housing policy which has generally improved the mood in the market and with the new rules of RERA and GST coming there is a general perception that GST should bring the prices down anywhere from 3-5%. Only time will tell and of course there will be some hiccups on RERA initially but it should settle down over a period of time.
The sector, which has been going through hard times since last two years, should revive.
What is heartening to see in your numbers, which are very good, is the fact that the hospitality business has seen significant traction in the quarter gone by. Is this one off or do you think you can maintain the growth you have shown in the segment. Also take us through the trends as far as average room rates are concerned?
We will substantially improve the performance of the hospitality sector in the coming year and in the coming years. In the month of April, we opened a Holiday Inn in Chennai on the OMR, opposite the Tidle Park which is a fantastic location and that hotel has received encouraging response. In the next four months we are going to open a three star 274 key Holiday Inn Express, Race Course in Bangalore, where we also have hotels under construction in Kochi, IT Park, Kochi Info Park a Four Points Sheraton and another hotel construction in Gift City, Gujarat IB style.
All these things should help us improve the performance of the hotel sector. Our hotel segment substantially. And we have also seen improved rates. ARRs have improved by 7-8% if not more and also the occupancy rates also have gone up in Sheraton Grand that has contributed significantly.
Which were the projects that reached revenue recognition in the quarter gone by? Going forward in Q1 FY18, which are the projects that you expect will hit the revenue recognition threshold?
We have quite a few projects are completed and revenue recognition will be from Brigade Lake Front, Brigade Orchards and also Brigade Cosmopolis. These are some of the residential projects and we also have stock in hand which will also bring in good revenue in the months ahead.
Post RERA the general view is that the sector is going to be more buyer friendly and large cap real estate. The decent real estate companies will struggle; there would be pressure on their cash flow; they would struggle to even deliver. What is your experience? What are the first trends which you have seen after the RERA’s implementation?
The act is yet to be implemented in a sense; though it is effective and a number of states are in the process of finalising the rules. Its total effect may come say from 1st of August or so. There will be some hiccups. There will be learnings for developers, customers and also for authorities; there are no experts in RERA as on date and there will be a learning period for everyone for the next few months and everybody has to discipline themselves whether it comes to managing cash flows or timely delivery of projects with increased customer expectation.
It is going to be a huge challenge for the entire industry which generally faces all kinds of expected and unexpected challenges during the course of construction of a project which can take anywhere between three to four years in many cases.
Let us understand how your rental business is going to move. A large part of the rental business is also dependent on sectors like IT, pharma. We do not see a lot of uptick happening in those large areas. Could that be a challenge for you?
Some layoffs etc for a few companies have been hyped up more than required by the media. Just three days back, the Nasscom in a press release said that the sector is doing fairly well and from maybe 3.5 million people it is expected to go almost 6.5 million people in the next eight years. Bangalore which contributes 38-40% of the IT business, whether it is exports or domestic thing, will see a major uptick in the IT office space in years to come but there could always be aberrations for three months, six months or even a year.
We are all in business for the long term and not for short term basis. As far as Brigade is concerned, we have on hand totally 8-9 million square feet of office space of which about 5 million square feet is SEZ and balance is non SEZ office space in Chennai, Bangalore, Cochin and Gift City. These are the four cities we are operating from and in the next few years our business from the lease rental segment should substantially go up. It should go up more than 100 to 150% in the next three years.