Wealth creating opportunities in realty: Pashupati Advani

Article from ET Realty

Responses to queries during online chat with Mr. Pashupati Advani, Founder and Chairman, Global Foray

It has been a market which has stayed dull across the country except maybe Whitefield road and a few other pockets, can it revive? Secondly, even if it does not revive and stay stable, can some of these beaten down real estate companies give investors some wealth creation opportunities?

Well, where I am seeing the wealth creation opportunities is that some of these companies are actually divesting some asset and putting them in SPVs which are being sold as good projects and you are seeing a lot of that. In fact, I think I saw something a couple of days ago of RMZ Group buying one of the builders and taking up a project. So, what I think is that you are going to have opportunities.

The thing is that our market is still discontinuous. What builders are building and wanting to sell is not what the public can afford. Basically, there is a gap so either we have to have wage inflation so that people are going to be able to afford it which I do not think our Reserve Bank Governor is going to be too happy about or the builders have to bring prices down. We are already seeing some discounting since last year.

I think the companies will have to indulge in deeper discounting this year. I think we have definitely got a gap between where people want to pay and where people are offering.

Mumbai maybe, not necessarily all the other cities.

No, I think what is happening is that construction cost has gone up and it is very difficult to deliver inexpensive real estate. I think that what the issue is that people are not able to afford even if you say Rs 3000, Rs 4000 as far as construction cost is concerned. Good construction cost is three (thousand) and bad construction cost is maybe Rs 1,500.

Do you think the strong builders will buckle as well, because you spoke about how the weak builders will start cutting down prices and that is where the crack would come into the market.

No, what is happening with the strong builders, particularly, the branded builders is that they are actually getting tie ups with foreign funds like Blackstone or sovereign wealth funds. They are able to co-develop these projects because they have the expertise and that is what is happening.

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