Realtors make a cautious comeback4 min read . Updated: 26 Oct 2009, 01:31 AM IST
Realtors make a cautious comeback
Realtors make a cautious comeback
Bangalore/New Delhi: When Mumbai-based developer Sunil Mantri launched a project in south Bangalore in September, he knew he had to get the strategy right.
His firm had bought the land in early 2008, the approvals were in place and it did a quick market survey before launching the project, its comeback in Karnataka after a decade.
It priced the apartments at Mantri Royal at Rs2,500 per sq. ft, Rs500 lower than the market rate, and sold about 40 units in a month. Upbeat, Mantri started selling a second project, Mantri Primero, on Sarjapur Road, at Rs22-25 lakh an apartment, again less than the market price.
Having burnt their fingers from investing in large-scale, pan-India projects that failed to take off, developers such as Mantri, DLF Ltd and Unitech Ltd are cautiously launching projects in new markets, after a forced sabbatical of 8-10 months during the downturn when they focused on their core areas of operation.
Analysts say the time is right for expanding although the market has not revived fully and buyers are still hesitant. Flush with money raised through qualified institutional placements (QIPs) and private equity (PE) deals, many builders are eager to cash in on the return of demand.
They are cautious, however, and have modified their business models to sidestep risks. For one, they are entering new markets with so-called affordable housing after many of them, during the boom, over-stretched themselves by buying land at steep prices for projects they later withdrew from.
“Developers who have land in various cities need to monetize them, after waiting for nearly a year for the sector to improve, and this is a good time considering demand is inching back and the right project will bring in sales," said an analyst with DSP Merrill Lynch (India) Ltd, who didn’t want to be named.
New Delhi-based Unitech, for example, India’s second biggest listed developer, is expanding as there is limited demand in the national capital region (NCR)—which includes Delhi’s suburbs—and it needs to explore markets where it has land, the analyst said.
Realty firms say they are trying to do things differently in a more challenging, post-downturn scenario, where the right pricing and apt projects are key to good sales.
The pan-India strategy of Gurgaon-based DLF, India’s largest realty firm by market value, is to build on acquired land, execute the projects fast and work on reduced profit margins, said a company executive.
The firm plans to launch residential projects in Chennai, Hyderabad, Kasauli and Goa in the coming year after recent launches in Kochi and Indore. These are in contrast with its township projects such as those in Bidadi in Karnataka or Dankuni in West Bengal from which it had to withdraw earlier this year because of the slowdown.
“We are doing large projects of 100 acres, etc., in cities such as Chennai but we are not depending on the government to acquire land," the executive said. “The projects are being developed on land bought by DLF."
When DLF withdrew from the Bidadi project, it blamed the state government for delaying land acquisition.
“A lot of developers are not looking at acquiring new land parcels in cities they are expanding into," said Anshuman Magazine, managing director, CB Richard Ellis, a real estate consultancy. “Developers are building on land that they had already bought as their liquidity situation is improving."
Mantri, chairman and managing director of Sunil Mantri Realty Ltd, which has 1,400 acres of land across India, agrees.
“Though we have the land, we will go slow and study the responses from each new project before launching a new one," he said. The firm has earmarked Rs600 crore as initial investment for projects in Karnataka and Madhya Pradesh.
Hiranandani Upscale, which thrives on building large townships, is raising Rs800 crore through PE funds for multiple projects both in smaller cities such as Pune or growth corridors in tier I cities.
“Mumbai places constraints in terms of high rent and land value while Bangalore and Chennai have evolved as a suitable substitute," said Neha Hiranandani, director, Hiranandani Upscale, which has projects in the three cities. “For us, this is a chance to expand into these markets and capture the opportunity."
The affordable housing concept too has pushed developers out of familiar territories. Unitech, which bought land nationally in the last five-six years, has launched projects in Lucknow, Mumbai, Kolkata, Chennai, Bhopal, Rewari and Mohali in the past six months, several under its affordable housing brand Uni Homes.
Even for its recently launched premium project in Worli, south Mumbai, Unitech slashed rates by at least 30%. In a pre-launch aimed at investors, it sold nearly 150 out of about 300 apartments in the project within a month, analysts said. Unitech is focusing on developing its existing land parcels, said R. Nagaraju, general manager, corporate planning and strategy. But the risk in expanding into other cities is in setting up a large team in each region to undertake the projects with enough freedom to operate, he said.
Bangalore-based Puravankara Projects Ltd plans to go pan-India through its affordable housing subsidiary Provident Housing Ltd. Encouraged by recent project launches in Chennai and Bangalore, it’s now aiming for Kochi, Hyderabad and Coimbatore.
“These are early days and we first want to build in the southern cities because it’s a market we know and then venture beyond that, both in the west and east," said Ravi Ramu, chief financial officer, Puravankara Projects.