 "Margins in Gurgaon higher than in Noida: R K Arora")
The Supreme Court's recent order to the developer of Emerald Court, Supertech Ltd, to refund apartment buyers in the 40-storey twin towers, if the customer demands it, would pose serious financial trouble to the real estate developer. Supertech had recently challenged an order of the Allahabad High Court, which had ordered the demolition of the two towers. In his first interview after the apex court's decision, R K Arora, chairman of the group and a Roorkee College of Engineering alumnus, talks to Surajeet Das Gupta and Mansi Taneja on how serious is the challenge facing the company and his strategy to overcome it. Edited excerpts:
You have to return the money with a 14 per cent compounded rate of interest by October-end, from the date of booking. Doesn't this put a huge pressure on your bottom line, if all 600 flat owners want to pull out?
Only 10-15 per cent of the 600 owners have asked for a refund. They booked at an average price of Rs 3,000/sq ft and with the interest we have to pay, it is Rs 5,000-5,500/sq ft. The average cost of the flat will be Rs 40-60 lakh. So, our outgo should not be more than Rs 18-20 crore, as the buyers have not paid all the money. Most of the people are willing to take alternative flats in any of our ongoing projects.
But what happens if you are directed to demolish the towers as the Allahabad HC directed?
That is a pending matter before the SC and I can't comment. All I can say is that the construction cost for the tower is around Rs 100 crore.
What happens to those who've asked for swapping their flats, to another project? Here, again, the court has asked you to give them a flat at the prevailing market rate of the towers, which is much higher. Again, a loss for you.
Yes, we have to offer them flats at Rs 5,000-5,500/sq ft. But the advance money the flat owners gave us three years earlier was used to pay for the construction. It was interest-free; otherwise, we'd have had to borrow from banks at a high rate of interest. So, there is no loss here.
Your projects are being sold at a substantial discount in the Noida area. Has the court decision impacted your brand name? Will you continue to launch new projects in Noida?
The impact is minimal. We have always delivered on time and been transparent to our customers. Yes, brokers are giving 10-12 per cent discounts on the upfront price of the flats. In Noida, customers who are looking for affordable housing expect large discounts, unlike in Gurgaon where discounts will never be more than four to six per cent. Also, we want to sell out flats as quickly as possible. This year, we are not announcing any new projects in Noida; our focus will be to deliver more flats to the customers.
You seem to have a lot of unsold inventory.
We are building about 50,000 units,of which 13,000 are unsold. We want to deliver over 10,000 units this year.
A few days earlier, you tied up in a joint venture with Xander, a private equity fund, for projects in Gurgaon. You have never taken PE funding for projects in Noida. Why this different strategy in Gurgaon?
In Gurgaon, you have to pay for land upfront, unlike in Noida. Banks don't finance money for acquisition of land and so we needed a PE fund to come in. In Noida, we pay 10 per cent upfront (it has now become 20 per cent ) and 11-12 per cent interest on instalments for seven years.
Are you also hedging your bets and reducing your exposure in Noida?
We will surely continue in Noida, which is a market for affordable homes. We have a land bank of 1,200 acres, of which we have still not used 400 acres. Currently, about 90 per cent of our business is in and around this area. We would reduce that to around 50 per cent with our Gurgaon projects.
Why is Gurgaon so attractive for you?
One reason is that margins for developers in Gurgaon are higher. It is 25-30 per cent; in Noida, it is 10-15 per cent. Noida is a volume business, with low margins. Also, for consumers, appreciation in Gurgaon is higher than in Noida in the past few years. It has been 15-20 per cent (annually) there, compared to 10-15 per cent in Noida. The size in Gurgaon is also bigger, a minimum of 1,200 sq ft, while in Noida you will get flats of 600 sq ft.
What is the deal with Xander?
We have acquired 140 acres in Gurgaon. Xander will be a joint venture partner, with 49 per cent stake in the project; they are putting in Rs 400 crore. We will give them an assured return of 20 per cent on their investment in the third year, when they move out of the project. The cost is around Rs 1,700 crore for two projects, including a group housing one. We will put in around the same amount of money and the rest will come from banks and customers.
A lot of customers fear a repetition of the Emerald project, where the court has said the by-laws were not followed. The apprehension might also be there with customers in existing projects.
We have followed all the building by-laws and have been a successful player since 25 years. Again, the matter is before a court. There is no question of any violation in our projects.
You have to return the money with a 14 per cent compounded rate of interest by October-end, from the date of booking. Doesn't this put a huge pressure on your bottom line, if all 600 flat owners want to pull out?
Only 10-15 per cent of the 600 owners have asked for a refund. They booked at an average price of Rs 3,000/sq ft and with the interest we have to pay, it is Rs 5,000-5,500/sq ft. The average cost of the flat will be Rs 40-60 lakh. So, our outgo should not be more than Rs 18-20 crore, as the buyers have not paid all the money. Most of the people are willing to take alternative flats in any of our ongoing projects.
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That is a pending matter before the SC and I can't comment. All I can say is that the construction cost for the tower is around Rs 100 crore.
What happens to those who've asked for swapping their flats, to another project? Here, again, the court has asked you to give them a flat at the prevailing market rate of the towers, which is much higher. Again, a loss for you.
Yes, we have to offer them flats at Rs 5,000-5,500/sq ft. But the advance money the flat owners gave us three years earlier was used to pay for the construction. It was interest-free; otherwise, we'd have had to borrow from banks at a high rate of interest. So, there is no loss here.
Your projects are being sold at a substantial discount in the Noida area. Has the court decision impacted your brand name? Will you continue to launch new projects in Noida?
The impact is minimal. We have always delivered on time and been transparent to our customers. Yes, brokers are giving 10-12 per cent discounts on the upfront price of the flats. In Noida, customers who are looking for affordable housing expect large discounts, unlike in Gurgaon where discounts will never be more than four to six per cent. Also, we want to sell out flats as quickly as possible. This year, we are not announcing any new projects in Noida; our focus will be to deliver more flats to the customers.
You seem to have a lot of unsold inventory.
We are building about 50,000 units,of which 13,000 are unsold. We want to deliver over 10,000 units this year.
A few days earlier, you tied up in a joint venture with Xander, a private equity fund, for projects in Gurgaon. You have never taken PE funding for projects in Noida. Why this different strategy in Gurgaon?
In Gurgaon, you have to pay for land upfront, unlike in Noida. Banks don't finance money for acquisition of land and so we needed a PE fund to come in. In Noida, we pay 10 per cent upfront (it has now become 20 per cent ) and 11-12 per cent interest on instalments for seven years.
Are you also hedging your bets and reducing your exposure in Noida?
We will surely continue in Noida, which is a market for affordable homes. We have a land bank of 1,200 acres, of which we have still not used 400 acres. Currently, about 90 per cent of our business is in and around this area. We would reduce that to around 50 per cent with our Gurgaon projects.
Why is Gurgaon so attractive for you?
One reason is that margins for developers in Gurgaon are higher. It is 25-30 per cent; in Noida, it is 10-15 per cent. Noida is a volume business, with low margins. Also, for consumers, appreciation in Gurgaon is higher than in Noida in the past few years. It has been 15-20 per cent (annually) there, compared to 10-15 per cent in Noida. The size in Gurgaon is also bigger, a minimum of 1,200 sq ft, while in Noida you will get flats of 600 sq ft.
What is the deal with Xander?
We have acquired 140 acres in Gurgaon. Xander will be a joint venture partner, with 49 per cent stake in the project; they are putting in Rs 400 crore. We will give them an assured return of 20 per cent on their investment in the third year, when they move out of the project. The cost is around Rs 1,700 crore for two projects, including a group housing one. We will put in around the same amount of money and the rest will come from banks and customers.
A lot of customers fear a repetition of the Emerald project, where the court has said the by-laws were not followed. The apprehension might also be there with customers in existing projects.
We have followed all the building by-laws and have been a successful player since 25 years. Again, the matter is before a court. There is no question of any violation in our projects.