10 Jan 2013

Real Estate Yearly analysis - 2013

2013 holds promise of getting out of vicious circle

The biggest question for the realty sector today is whether 2013 will help them get out of the vicious circle, which came disguised as the pipeline visibility over the years. Many believe everyone is getting ready with own respective strategy and the year ahead holds promise. Some of the leading companies are already selling their land bank at discounted prices to turn the tide.

For instance, the market leader DLF that had plans to expand across India with footprint in around 28 cities, now seems to be reviewing its strategy. In some cities its planned projects remain plots of land on which the company is in no hurry to build. In some cities it plans to sell the land parcel.

Sunil Dahiya, Sr Vice President of industry body NAREDCO philosophises the situation when he sums up the year in just one word, “Bach Gaye” (We have been saved). According to him the worst is over and whosoever has been able to survive through 2012, the year that promised to collapse many dreams, are serious players in the ring and able to sail through the business ahead.

“Going forward, all the stake holders, including the government, are getting serious and some formula will soon be evolved to take the business to the next level so that housing shortage does not become a political issue. Towards the end of the year, we saw a major reform ‘FDI in Retail’ being given as a year-end gift to the sector. The Year 2013 looks to hover around preparing the house warming for this major boost of ‘FDI in Retail’. A complete investment climate is coming to shower boom on the sector with investments chasing logistics hub, warehousing hub, contract farming etc coming to the sector. The Land Aquisition Bill being deferred to the winter session will see probably the same action as the result of FDI in Retail saw, says Dahiya.

However, statistics suggest alarm bells are still ringing in the sector. In 2007 DLF paid about 7o2 crore rupees for a plot in Mumbai to build 5 million square feet of luxury homes in a city where its only other presence is a minority stake in a project with Hubtown. The company eventually sold Mumbai land for 2,700 crore in August, 2012 to help pay down debt.

This has been the biggest realty deal in the country this year. With loans of about Rs. 22,500 with average interest rate of 12.5 per cent, the company was left with little choice. From a peak in early 2008, DLF shares took a beating, down 82 per cent, valuing it at $6.5 billion.

The financial analysts though maintain the valuation of DLF’s land has been lower when compared with Indiabulls’ deal in 2010 for 8.39 acres of NTC land for Rs 1,580 crore when DLF got Rs 1,227 crore for 17 acres. In 2010, Lodha made an even bigger deal in Wadala when it bought a 25,000-square metre plot for Rs 4,050 crore. Analysts maintain for the five million square feet of saleable floor space at Worli, the DLF deal could have been valued at Rs 5,000-5,500 per sq ft. Other property in the area retails were around Rs 30,000 per sq foot – nearly five to six times the price paid by Lodha.

DLF, however, had an urgency to sell, given its pile of debt. On 30 June, 2012, its debt was as high as Rs 22,680 crore and the largest developer just about managed to get an honourable tolerable deal from Lodha. As DLF’s Senior Executive Director Sriram Khattar says, “We are pleased with the transaction. There is a price discovery in large deals and whatever best price you find you go ahead.”

However, not all the developers have the luxury of large land bank, and even those who have it are not sure whether land bank has turned out to be land liability. For instance, Unsold land-banks forced some Mumbai-based developers to ask recruiters to get them fund managers who will help them sell the tracts. Property sales across top micro markets in the country have plunged due to higher interest rates and hardening of real estate prices.



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