New Delhi: Real estate prices are on the rise again, but some markets are likely to see a slowdown in demand, especially where rates have risen too rapidly, says Sanjay Chandra, managing director of Unitech Ltd, in an interview. The company recently announced it will create a separate listed infrastructure entity that will focus on EPC (engineering, procurement and construction), telecom transmission towers and hydropower projects. Edited excerpts:
Do you plan a listing in Singapore?
No, no such plans. My personal view is when you are listed in a market, which is not your home market, it’s not easy to have retail participation in your stock. Because of that, trading is not very high—we saw that after we suffered at the London (AIM) listing. It’s very difficult to create awareness about your company in a foreign market.
What about your Reit (real estate investment trust) plans?
If someone goes ahead and does a successful Reit, then yes, we will revive our Reit plan also, but personally we are not going to be the first movers in Reit. So let someone else pave the way and we will consider it.
Cautious comeback: Unitech managing director Sanjay Chandra says the firm is reviving its interest in the premium homes segment and plans to launch more projects, especially in newer cities, in the coming months. Pradeep Gaur/Mint
Are you considering financing for any of your projects?
No, it will be completely through internal accruals though there would be some debt refinancing, but that’s about it. In April 2009, we had money market exposure of Rs6,000 crore through funds, etc. Today it is Rs570 crore and by end of the month it should be around Rs50-60 crore.
How much debt does Unitech have on its books?
Right now, our total net debt will be sub-Rs5,500 crore, from a peak of Rs10,000 crore. This year we’ll generate Rs3,500 crore of cash, of which Rs500 crore approximately will go as interest (payment). So Rs3,000 crore I have towards repayment of debt just this fiscal year—of which I can afford to allocate up to Rs500 crore for purchase of any assets.
So this year itself we can reduce half the debt, but if we don’t buy any land, in less than 24 months we will be zero-debt.
What is your debt-to-equity ratio?
We had become 1:2.2, we are now 1:0.5. The industry average is 1:0.7, I think. Most of those who will file their IPOs (initial public offerings), even after they raise their money, will still be 1:1.5. Even after they raise their money, they are not solving 100% of their problems.
Are you reviving your interest in the premium homes segment?
You will see many more launches and in newer cities also. We have launched a project in Mysore, (in) Bangalore we will be launching something in the next month. One of the things in hindsight that went wrong in the past...we went pan-India at the same time. If we started with two or three cities at a time, it still would be manageable.
So what we have done for the last one-and-a-half years is focus on two-three (cities) at a time before we address the rest. The first two which we addressed are Mumbai and Chennai, now Bangalore and Hyderabad are the focus.
What is the current status of your hospitality projects?
There are 11 in this portfolio totalling around 2,400-2,500 rooms. Three of them are in advanced stages of construction—one is in Gurgaon, one is in Kolkata and one is in Noida. Rest, we are not progressing faster as we didn’t have access to long-term funding.
Have you managed to hold the price line for your affordable homes brand Unihomes?
Unihomes prices have seen an increase, but not too much. Our view is that we have so much land that we don’t want to outprice ourselves too fast by increasing prices too fast. If I have land enough to do just one building, I would want to maximize returns. We have enough to sustain gradual increases rather than very steep increases.
How much has the price increased?
Just to give you a perspective, the first project through which we revived the market, in Gurgaon, was Uniworld Gardens-II, where we sold for Rs2,800 per sq. ft at mostly one price or we increased it by Rs50, which is not much. Today, since people are seeing the buildings visible and they know end of the year delivery will start, which is one year before time, the rate is Rs4,000. But the new project, which we are launching in the vicinity, I can start the price at Rs4,000, but we are starting it at Rs3,500. So it’s possibly gone up 20% in the last one-and-a-half years, but that is because people are seeing a lot of activity and the risk factors are less.
So the perception that markets are heating up again is correct?
I get that sense in some markets. Mumbai has seen a slowdown in volumes. See Mumbai affordability has always been an issue, it’s so expensive. And when the volumes drop, that means you are outpricing the product. So I think our concern is more Mumbai. NCR (National Capital Region) fortunately does not go irrational as there’s a lot of supply. NCR as a city which is radial, so there’s room to expand, Mumbai has none. And because there isn’t room to expand, people can be irrational and sometimes get away with it. But logically, it doesn’t make sense, eventually logic catches up. But when does it catch up, you never know.
Today we are saying it’s irrational, but this thing may continue for another two years and we will be missing out on that.
What are your plans for asset acquisition?
We want to be distress asset buyers, not asset buyers. So if there’s someone in pain and we get attractive terms because of that, we are willing, otherwise we are not. That we will soon come to know after the host of IPOs that will hit the market—of those the ones which are not able to attract investors will be possibly the ones who become distress sellers.
Your absorption levels in Noida and Greater Noida have been quite low.
Noida we did very well in the first round in Unihomes, after that we have not been able to launch a Unihomes yet. Grande has picked up, but Grande in value is a lot, but in square footage is less. Greater Noida as a market, which is overall disappointing, that market has not recovered at all. The biggest challenge (is that) there is no employment creation. And secondly, now the price arbitrage between the affordable housing in Noida and Greater Noida is not too large. It’s around Rs400-500 per sq. ft on an average and for a typical 1,000 sq. ft apartment, a person would rather stretch a little more to be in Noida. So our future sales are slow right now and I don’t see them reviving for one or one-and-a-half years.
What is the status of your special economic zone (SEZ) projects?
There are five ongoing ones, of which three are operational—in Gurgaon, Noida and Kolkata. Of the other two, (on) one we have started construction and one is in Greater Noida, so nothing is happening there.
For developers like us, the charm of SEZs is not that good any more for the main reason of financeability. So we will complete all the existing ones, but no more.
You mentioned your stake in telecom venture Uninor as being that of a strategic investor—are you considering selling out?
After their business plan objectives are met, which is a period of three-five years, we will take a call. Our role is that of a shareholder, we add certain value to the venture. We have to wait for value creation in the long term—it will be either this company growing and acquiring someone or listing, or whatever. We wouldn’t be averse to selling out. We are a strategic investor, but it’s not a liquid asset today. But yes, we know that this is a thing which will create a lot of value.
Look at the examples of Essar Group or Max India Ltd. The key here is to get a very good, able operating partner with relevant experience.