There are many gods that sit on Shravan Gupta’s desk, the dapper executive vice-chairman and managing director of Emaar MGF — the three-year-old real estate venture between MGF Development and the Dubai-based Emaar Properties. Perhaps that is the reason he considers most things a blessing, including the Rs 7,000-crore failed IPO six months ago and the industry slowdown, which, he tells Vandana Gombar will separate the horses from the donkeys in the race.
Your last few projects in Mohali, Hyderabad and the Games Village have got a good response. Is it better than expected?
It is in line with our expectations. We believe if you price your product reasonably, there is no problem in demand. We also believe that price has become secondary. The most important factor in the customer’s mind today is assured delivery. So, it is the top two-three players in any geography who are able to sell. In a boom market — like the exaggerated euphoria we have seen in the past — there is no difference between a horse and a donkey. Everybody is able to sell. In a market like today’s, that is entering a phase of maturity, short-term investors have vanished. We are focused on the actual user. If we price our product sensibly, we are going to attract volumes, and there will be no net impact on us.
So for companies like yours, you could be saying: what slowdown?
Our view of the slowdown: last year when we announced a project, we would sell it in a month. Today, we are able to sell the same thing in six months.
At a lower price than a year ago?
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No. Same as last year.
If you were selling Games Village apartments in July last year, the price would have been the same?
It would probably be Rs 15,000 per sq-ft last year, against Rs 12,500 now, and it would have sold faster. Keeping the macro environment in mind, we have been conservative…safe. We can always raise the prices — in the next phase we will.
How is the company tiding over the funds requirement that would have been met by the IPO proceeds?
We are getting in more residential products that bring in cash flows, and are staggering some investment projects, like IT parks. One of our objectives at that time was land acquisition, but that can be deferred for 6-12 months.
Some say the opposite — this is the best time to buy land.
Liquidity is at a premium today. I will see where my rupee will work the hardest. It would work hard in land acquisition but getting more projects on the ground is important as we have enough land.
Has your 13,000-acre land bank suffered reduction in value?
I don’t think so. Prices will come down if the environment remains like this for 24 months. That is unlikely, but we don’t know what tomorrow holds.
If you had managed to go ahead with the IPO, would you sell projects you are now selling at Stage I at Stage III or IV?
In some cases, yes. But on the other hand, even if the IPO had gone through, and we had temporary liquidity, we would have to manage quarter-on-quarter expectations in this challenging environment. Investors would have lost a lot of their wealth. We would have investor grievance without any fault of ours. There is a sense of exaggerated bearishness in this sector today that is not merited.
Is it probably just as well that the IPO did not go through?
That is our biggest strength. We are not compelled to take decisions that are short-term focused. If I have to deliver a result in 90 days, I will have to think very differently. I am jogging in the park, not running on the treadmill.
Cost of funds for real estate companies have also gone up. What is your average cost?
Costs have gone up but availability has come down. In January, our average cost of funds was about 10 per cent; today we are at about 13 per cent. We are still lower than the industry average of 16 per cent.
When do you see a turnaround?
Things are going to be challenging till the general elections. Politics will get a preference over business. I also think demand exists — people want to buy homes. As soon as there is a dip in interest rates, the demand will come back. Had it been a situation where interest rates were low and product offtake was not happening, I would be worried.
Post-Diwali, do you see a shakeout in the industry?
Consolidation will happen by the way of customers preferring the top two-three developers in any city, but I don’t see consolidation happening where one company takes over another — the DNA of all companies differs drastically .
You have brought in private equity (PE) investors at the SPV level. Are you open to this investment in the holding company too?
Today, the PE investor is seeking his pound of flesh. When you do a deal on a SPV (Special Purpose Vehicle) level, you give value to the PE investor but only in that asset. To my mind, this is currently the right approach to follow. We are open to PE investment at the top only if it comes at a fair value. We have not talked to anybody yet. This is not the right time to seek investment.
So when do you give yourself up to the rigours of the market?
One thing is for certain — when we come out the next time, we will come out when we are 100 per cent confident that the environment is conducive. I think Q3, October-December, but it will also depend on when the general elections take place. We don’t know what things are going to be like.
There has been some speculation about this partnership. What is the long-term outlook for a partnership between one who has very deep pockets and one with limited pockets?
Emaar always had deep pockets. For them, India is a crucial market. The fact that they are investing ($150 million) in SPVs is a clear proof of how committed they are. We are not expecting any change in their business strategy or direction.
And there has never been a conflict of interest between the partners?
Why should there be? Everybody is contributing their strengths. They have the resources and technical know-how and we have local knowledge and the experience of working in this environment. For foreign players to exist in the Indian space on their own is a very challenging situation. In fact, even for domestic companies to work in India is a challenge. (Laughs.)