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| Rajeev Talwar |
This Q&A first appeared in DNA Money edition on Wednesday, November 28, 2012.
Rajeev Talwar, executive director of DLF Ltd, says the country’s largest realtor is discussing taking up an ongoing development project in the megalopolis. Overall, he said things are better in the real estate sector and high inventories will act as a price ceiling as boom returns. Excerpts from an interview...
DLF currently has no project in Mumbai. Any plans to have one going forward?
We do have an interest in a very large and prized development in Mumbai. This project will be taken up with our partners very soon. We are currently doing the initial part of what we were supposed to do in that project. This is an ongoing project and one would be able to see a lot of construction activity on the site but the commercial part will be launched in consultation with our partners at a later stage. So the rehabilitation part has been taken up first, post which we will launch the residential development. I would be in a position to share precise details only later. Any announcement timeframe for this will be done once the partners have arrived at a mutual decision.
What is the story on DLF’s debt reduction?
We are working towards it. The Mumbai land deal with Lodha has concluded, money received and utilised towards cutting debt. Similarly, there are negotiations going on for the sale of Aman Resorts and wind-power business. We are quite confident of closing these transactions within this fiscal. Some funds are stuck with various departments of the government and various states – that should kick in as well. This apart, money would also flow in as a result of new launches happening in the coming quarters. So, we are well within our target of achieving Rs18,500 crore of debt (from Rs21,000 core) this fiscal. We are targeting to bring it further down to Rs15,000 crore the next fiscal.
How confident are you about closing the Aman Resort sale, considering the valuation concerns? It’s been in the works for a long time now.
These are complex financial transactions and they do take time because of the paper and legal work, but we are working very hard to close the deal. Valuations are a matter of international analysis and there is no point speculating over it. While we would certainly want to sell it at the highest price, the buyer would want it at the fairest valuation. It’s a two-way process, talks are ongoing and being held in India and overseas. We are extremely hopeful of completing the deal within this fiscal.
The new launches being planned -- will they be specific to certain markets or geographies? How much money are you expecting to receive from these launches?
We operate in a large number of states across the country, so launches will happen across the country. The launches spread over the next couple of quarters should give us anything between Rs2,000 crore and Rs3,000 crore. The money thus received will be very helpful in reducing debt further.
What’s the outlook for next year?
I think everyone – the policymakers, decision-makers, the finance minister, the Prime Minister himself – is looking forward to a much better year. I think they are working hard at it and in whatever way the private sector can contribute, I am sure we will. It will not only help the nation, it will also help us in turn. To come out of a cycle of low growth is a very difficult task for the nation but am sure it can be done.
What's the current business environment for realtors?
To tell the truth, it is looking up a little. But a lot remains to be done. If the quarter-on-quarter (Q-o-Q) GDP growth rates don’t show any improvement despite a good crop, we’d need a stimulus. If that happens, the overall business environment will look better, including for real estate.
What can spur the sector?
Finance minister’s persuasion on home financing by public sector banks. If food inflation gets under control and interest rates come down for individual buyers of homes, that would be great. A large inventory remains at the moment, which could open up for rental incomes once the economy starts looking up.
Then there are reforms required in the area of sanctioning supply. I think the time cycle taken over sanctions and then for construction to commence is fairly long in various local bodies or as a nation put together. If this can be cut down, supply will sync with demand. One must remember that real estate is a long-cycle industry and it takes 3-4 years to catch up with demand.
Unsold inventory is a major concern in the industry…
In a way, we are very fortunate in India that there is a large numerical inventory available. That’s because when there’s an economic upturn, price bubbles get created. The current inventory can take care of demand for the next 12-24 months, which gives enough time for the market to establish equilibrium between the demand and supply cycle. Despite difficult circumstances, building and construction activity did not plunge. And, overall, there has been investment by companies like Godrej Properties and Tata Housing, that are doing very well today.
But prices have shot through the roof and houses are not affordable anymore...
All those saying this belong to only super-metros. I don’t think people outside the four cities of Delhi, Kolkata, Mumbai and Chennai would agree with such a perception. And everyone in these four metros refers to only the established parts of the city where supply is low. As a result, there is significant increase in prices per square foot (psf). It is a fact that in satellite cities or in peripheries of towns, you have prices that are very affordable. I think from anywhere from Rs 2,000 to Rs 4,000 psf, which is rather affordable than expensive.
But houses in even the extended suburbs of, say, Mumbai remains unaffordable.
Areas connected to super-metros will certainly have that kind of a situation. Land prices in such locations play a significant role in increasing the overall cost of an apartment and I’d assume that would have been the case. That apart, one will also have to look at the kind of margins these developers are operating in. Having said that, if you look at cities like Ahmedabad or cities in south India, one can still find apartments that are priced in the Rs2,000 to Rs4,000 psf range. My personal view is that housing is still an affordable expense. But people want to live close to the heart of the city where housing for the middle class remains a dream because prices are so high.
Mumbai developers seem to be fascinated by luxury developments…
I think Mumbai is a well-developed market. Everyone calls their project a luxury development because that’s the catchword for a good quality of life and nothing more than that. While developers do talk about luxury, the size of Mumbai apartments is still small. I must say the developers are doing a very good job. The credit to a large extent also goes to the citizens as they use space extremely well. Mumbai is one city where one has seen that right from the floor to the ceiling, every inch of space is used optimally. I think that’s an extremely efficient usage of space. Developers are able to squeeze in two or even three bedrooms even in a 1,000 sq ft flat. That’s is not the case in other cities. While land prices in Mumbai are certainly a matter of concern, a liberal regime with respect to floor space index and floor area ratio will help to a great extent in arresting unaffordability – larger the supply lower the price. These are a few things our colleagues in Mumbai will have to pursue aggressively because the city does face a shortage of supply.
Rajeev Talwar, executive director of DLF Ltd, says the country’s largest realtor is discussing taking up an ongoing development project in the megalopolis. Overall, he said things are better in the real estate sector and high inventories will act as a price ceiling as boom returns. Excerpts from an interview...
DLF currently has no project in Mumbai. Any plans to have one going forward?
We do have an interest in a very large and prized development in Mumbai. This project will be taken up with our partners very soon. We are currently doing the initial part of what we were supposed to do in that project. This is an ongoing project and one would be able to see a lot of construction activity on the site but the commercial part will be launched in consultation with our partners at a later stage. So the rehabilitation part has been taken up first, post which we will launch the residential development. I would be in a position to share precise details only later. Any announcement timeframe for this will be done once the partners have arrived at a mutual decision.
What is the story on DLF’s debt reduction?
We are working towards it. The Mumbai land deal with Lodha has concluded, money received and utilised towards cutting debt. Similarly, there are negotiations going on for the sale of Aman Resorts and wind-power business. We are quite confident of closing these transactions within this fiscal. Some funds are stuck with various departments of the government and various states – that should kick in as well. This apart, money would also flow in as a result of new launches happening in the coming quarters. So, we are well within our target of achieving Rs18,500 crore of debt (from Rs21,000 core) this fiscal. We are targeting to bring it further down to Rs15,000 crore the next fiscal.
How confident are you about closing the Aman Resort sale, considering the valuation concerns? It’s been in the works for a long time now.
These are complex financial transactions and they do take time because of the paper and legal work, but we are working very hard to close the deal. Valuations are a matter of international analysis and there is no point speculating over it. While we would certainly want to sell it at the highest price, the buyer would want it at the fairest valuation. It’s a two-way process, talks are ongoing and being held in India and overseas. We are extremely hopeful of completing the deal within this fiscal.
The new launches being planned -- will they be specific to certain markets or geographies? How much money are you expecting to receive from these launches?
We operate in a large number of states across the country, so launches will happen across the country. The launches spread over the next couple of quarters should give us anything between Rs2,000 crore and Rs3,000 crore. The money thus received will be very helpful in reducing debt further.
What’s the outlook for next year?
I think everyone – the policymakers, decision-makers, the finance minister, the Prime Minister himself – is looking forward to a much better year. I think they are working hard at it and in whatever way the private sector can contribute, I am sure we will. It will not only help the nation, it will also help us in turn. To come out of a cycle of low growth is a very difficult task for the nation but am sure it can be done.
What's the current business environment for realtors?
To tell the truth, it is looking up a little. But a lot remains to be done. If the quarter-on-quarter (Q-o-Q) GDP growth rates don’t show any improvement despite a good crop, we’d need a stimulus. If that happens, the overall business environment will look better, including for real estate.
What can spur the sector?
Finance minister’s persuasion on home financing by public sector banks. If food inflation gets under control and interest rates come down for individual buyers of homes, that would be great. A large inventory remains at the moment, which could open up for rental incomes once the economy starts looking up.
Then there are reforms required in the area of sanctioning supply. I think the time cycle taken over sanctions and then for construction to commence is fairly long in various local bodies or as a nation put together. If this can be cut down, supply will sync with demand. One must remember that real estate is a long-cycle industry and it takes 3-4 years to catch up with demand.
Unsold inventory is a major concern in the industry…
In a way, we are very fortunate in India that there is a large numerical inventory available. That’s because when there’s an economic upturn, price bubbles get created. The current inventory can take care of demand for the next 12-24 months, which gives enough time for the market to establish equilibrium between the demand and supply cycle. Despite difficult circumstances, building and construction activity did not plunge. And, overall, there has been investment by companies like Godrej Properties and Tata Housing, that are doing very well today.
But prices have shot through the roof and houses are not affordable anymore...
All those saying this belong to only super-metros. I don’t think people outside the four cities of Delhi, Kolkata, Mumbai and Chennai would agree with such a perception. And everyone in these four metros refers to only the established parts of the city where supply is low. As a result, there is significant increase in prices per square foot (psf). It is a fact that in satellite cities or in peripheries of towns, you have prices that are very affordable. I think from anywhere from Rs 2,000 to Rs 4,000 psf, which is rather affordable than expensive.
But houses in even the extended suburbs of, say, Mumbai remains unaffordable.
Areas connected to super-metros will certainly have that kind of a situation. Land prices in such locations play a significant role in increasing the overall cost of an apartment and I’d assume that would have been the case. That apart, one will also have to look at the kind of margins these developers are operating in. Having said that, if you look at cities like Ahmedabad or cities in south India, one can still find apartments that are priced in the Rs2,000 to Rs4,000 psf range. My personal view is that housing is still an affordable expense. But people want to live close to the heart of the city where housing for the middle class remains a dream because prices are so high.
Mumbai developers seem to be fascinated by luxury developments…
I think Mumbai is a well-developed market. Everyone calls their project a luxury development because that’s the catchword for a good quality of life and nothing more than that. While developers do talk about luxury, the size of Mumbai apartments is still small. I must say the developers are doing a very good job. The credit to a large extent also goes to the citizens as they use space extremely well. Mumbai is one city where one has seen that right from the floor to the ceiling, every inch of space is used optimally. I think that’s an extremely efficient usage of space. Developers are able to squeeze in two or even three bedrooms even in a 1,000 sq ft flat. That’s is not the case in other cities. While land prices in Mumbai are certainly a matter of concern, a liberal regime with respect to floor space index and floor area ratio will help to a great extent in arresting unaffordability – larger the supply lower the price. These are a few things our colleagues in Mumbai will have to pursue aggressively because the city does face a shortage of supply.
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