The real estate sector, which saw a super-charged growth between 2004 to 2008 due to heavy foreign funding and high investor and end-user interest, is facing a double whammy of sorts. Demand has dipped even as prices have fallen as much as 50 per cent in some cites, and developers are facing pressure as debt levels have gone up.
To cash in on the property boom between 2004 and 2008, developers used all means of capital to fund their expansion plans in the last four years. That included loans from commercial banks and financial institutions at high rates, tapping equity markets, private equity funding and so on.
Property sales have fallen over 70 per cent compared to early last year in some cases despite the cut in interest rates in the last few months and a fall in property prices.
A high debt burden and a fall in their stock prices coupled with a decline in property prices have made real estate developers rethink on their plans. Realty stocks have fallen more than 70 per cent from their peak last year.
Big developers such as DLF, Unitech, Omaxe, Parsvnath and others have entered mid-income housing, in the range of Rs 20 lakh to Rs 40 lakh, to boost their volumes, and have scaled back their expansion to conserve cash in their books. Developers have also rolled over their short term debt with commercial banks and mutual funds in a bid to reduce their debt burden.
Unitech, promoted by Chandras, has entered into mid-income projects, sold its hotel asset, rolled over the debt apart from improving efficiencies to tackle the liquidity issues.
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Unitech has launched a number of mid-income projects in cities such as Gurgaon, Mumbai and Kolkata to buck the downturn in the property market. Unitech claims that it has got a good response for its affordable housing projects. For instance, the company sold 150 apartments in the 15 days of launching its affordable project in Gurgaon, near Delhi.
Now the company is planning to go a step further and launch residential projects in the range of Rs 5-10 lakh in cities such as Gurgaon, Chennai and Kolkata over the next few months.
“We have just tested the market with the launch of our new affordable housing projects across NCR, Kolkata and Mumbai and we have seen that even without aggressive promotions by the company, buyers have come forward to make bookings,” said R Nagaraju, general manager, corporate planning, Unitech said.
"This clearly shows that there is an appetite in the market for products that are priced at the right point. We are working on plans to launch few more affordable projects in the near future,'' Nagaraju added.
The company is also focusing on smaller offices in non-IT segment and is putting certain projects on hold. It has dropped plans to develop two of the proposed six information technology parks, due to the slump in demand from the IT industry. At least 38 per cent, or 8.3m sq ft of its projected commercial space of 21.4 m sq ft is on hold.
The company has also sold its assets to generate cash for the company. It has sold its Gurgaon Hotel for Rs 230 crore and is in the process of selling its Saket property.
"The company has adopted value engineering through which we have been able to cut costs. We have standardised the systems, processes and technology deployment. The designs of buildings and apartments have been standardised. Product features that are perceived to be of low value by the customers have been done away with,'' said Nagaraju.
Unitech has also brought down inventories of steel and cement by buying them on a project basis instead of overstocking them. "The fall in the prices of cement and steel in the last few months has helped in bringing down the construction cost of projects. This, along with reduction in project costs have helped us in offering affordable product to our customers,'' Nagaraju added.
The company recently restructured Rs 600 crore of debt, a part of which has been prepaid through the proceeds of sale of Marriott Courtyard hotel in Gurgaon. In January this year, the company reduced its debt obligations due by March from Rs 2,500 crore to Rs 600 crore, by repaying in part, Rs 900 crore to mutual funds and restructuring some bank loans.