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Builders freeze new launches, focus on delivery as sales slow

LiveMint logoLiveMint 12-06-2014 Madhurima Nandy

Bangalore: Builders sitting on a mountain of unsold homes that will take about three years to find buyers are delaying new launches, focusing instead on completing projects to generate cash flows.

Real estate developers in the National Capital Region (NCR) are troubled by the oversupply of homes offering greater choice to potential buyers, while steep prices continue to dampen sales in the Mumbai metropolitan region (MMR).

Delhi-based Parsvnath Developers Ltd has no launches planned, except one for which it had raised money from private equity firm Red Fort Capital Advisors Pvt. Ltd. The company will instead focus on selling unsold homes to raise money, said chairman Pradeep Jain.

“There is no point in new launches because investor sentiment is low and we are not happy with the sales momentum,” Jain said. “We have 40 projects in hand and completing them is our top priority. Since a large area is already under construction, we want to focus on their execution and delivery.”

At the end of March, there was 806 million sq. ft of unsold homes across India. At the average sales rate of 60-70 million sq. ft per month, it would take 12-13 quarters or about three years to unload this inventory.

Property markets in Bangalore and Chennai showed stable demand in 2013-14, while the MMR and the NCR were plagued by oversupply, a rapid price rise and slow execution, which affected sales, according to a June HDFC Securities Ltd report by analyst Adhidev Chattopadhyay.

While NCR and MMR developers saw muted volumes in 2013-14, property prices saw a steep rise in these markets, the HDFC Securities report said. However, sales of Bangalore-based Sobha Developers Ltd and Prestige Estates Projects Ltd did not suffer, thanks to rational pricing.

Kumar Urban Development Ltd, which has a pipeline of 45 projects, is planning to hive off some of them and focus only on four-five projects at a time.

“In Mumbai, we want to do projects of 1-5 lakh (100,000-500,000) sq. ft and that will set a bottom line of `1,000 crore of gross profit per project,” said Lalit Kumar Jain, chairman and managing director. In Pune, its core market, Kumar is collaborating with other builders or selling off land under 1 million sq. ft within the city and under 3 million sq. ft in the suburbs.

Kumar, which has around 12 under-construction projects in Mumbai, will take up work in the city selectively. Seeing weak buyer sentiment, it has also frozen launches until Diwali.

Lack of buyer interest has slowed sales in the investor-driven NCR market, said Pankaj Kapoor, managing director, Liases Foras Real Estate Rating and Research Pvt. Ltd. There is demand for flats costing `3,000-3,500 a sq. ft, but there are not many projects in this price band. Meanwhile, the response to premium projects remains poor.

“Developers are bogged down by negative cash flows. More launches mean further commitment and higher debt,” Kapoor said. “Without pressure from private equity funds or external factors, developers do not want to increase their inventory further and are looking to sell what they already have.”

However, Kapoor feels that if the new government at the centre speeds up the process of project approvals, there could be some respite in the coming months.

In Mumbai, Orbit Corp. Ltd is relaunching two projects stuck for nearly two years without necessary approvals. The company, which sells apartments costing `1.5-50 crore, was affected by the stagnant pace of project approvals as well as the overall slowdown in the luxury property market.

Managing director Pujit Agarwal claimed the company is back on track with the relaunches and two new projects which will increase sales.

“It’s still a couple of quarters away before sales start, because buyers today want to see construction on the ground before they put in their money,” said Agarwal.

The company has `1,200 crore of debt and wants to reduce it by `300-350 crore in 2014-15.

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