Rajeev Talwar, group executive director, DLF, was waiting for feedback on the latest caller tune he was finalising for the company, before starting his interview with Nivedita Mookerji. Once he was happy with the 30-second tune, that anybody calling DLF would hear soon, he spoke at length on the second round of slowdown, corruption in the real estate sector, fund crunch, project delays, valuation issues, and more. Edited excerpts:
Have you sensed any sign of yet another round of economic slowdown?
I think in all sectors you will get this feeling and business results, which will point to a slowdown. This is true for auto sales, telephone connections, movement of consumer goods, apparel and possibly of course homes.
So, has there been a slowdown in demand in the real estate sector, including in the residential segment? We keep hearing about the demand falling and price correction, but real estate prices hardly ever dip. Why so?
You must be talking either of 2006-07 or maybe something very close, like right now. 2008 and 2009 definitely saw price correction. There was a slowdown, and India was a part of it. But, India survived, much better perhaps, due to the demographic advantage. What we saw then was because employment was threatened, there was a pull-back in investment and that was reflected in the construction sector.
There was a slowdown in investment followed by execution. We scaled down businesses here in India to some extent, and, therefore, survived the global meltdown much better than the counterparts in the developed countries. This was true for the housing, construction and the engineering industry, too.
Subsequently, people’s confidence returned, and there was a rebound in the residential sector. During 2008-09, since execution had slowed down, investment was slow to return, projects were slow to come up, there were some retrieval and a corresponding rise in prices. But even that was lower than the peak level of 2006 and 2007. When India Inc began doing well, companies started looking for office space, new business in outsourcing, thereby increasing the demand for commercial and information technology space. While retail did recover, it did not touch the high peaks of 2006 and 2007.
What about more recent times when real estate demand is said to have dropped?
Over the past one year, the economy has been doing fairly good, which would have shown better results had India undertaken the second wave of reforms. Raising the monetary policy rates may be important to tackle inflation, but many economists now say it is not good to suppress demand. This is what you are seeing now, there’s a demand suppression. That is because loans are becoming expensive for a potential buyer.
In the residential segment, demand is not softening, but demand is being suppressed as it is becoming too expensive for the end user. Also, funds for projects are not coming at a more viable rate. Eventually, this is pushed to the consumer.
Are real estate developers still experiencing project delays?
Certainly not. In fact, project completion should be the order of the day. Project delays were a result of scaling down in 2008 and 2009. Today you see a large number of corporate sector giants investing abroad. While it may show the maturity of the sector, at the same time a lot of money is flowing out. There is a serious requirement from the government and federal regulator to find a solution to control inflation, rather than suppress demand.
What is the reason that real estate is perceived, rightly or wrongly, as one of the most corrupt sectors?
I think corruption is a very fashionable word at the moment. Earlier, they used to talk of land banks and then they started talking about carpet area and super area. Today, it is coming in as corruption.
Now, what kind of corruption would you talk about? This is a sector governed by licence raj, which results in lack of transparency. Is that what you are talking about? Or, is it the other fashionable word going around —black money? Or is it the other kind of corruption that people don’t understand what is carpet area and what is super area?
There are various kinds of misgivings and myths. In the case of licence raj, it is true that a lot of approvals are required. They could be for safety, town planning or architecture control. It is possible, just as in the manufacturing industry, that many of these controls are done by vague standards. Wherever we try to restrict the number of players, it will lead to some protection, that could result in lack of competition and lack of transparency.
Recently, Reserve bank of India (RBI) issued a warning to developers on over-valuation of properties for loan. Your comment?
I have heard of the RBI's announcements. They quote one case of Samudra Mahal. That one flat has gone for Rs 1 lakh per sq ft. The truth is that these are singular emotional purchases. I think, a single sale does not make the entire industry. If finance comes in more easily, and you could develop more units and increase supply, why would anyone need to overvalue his assets? On one hand you are saying people are over-valuing their assets to take loan, and on the other hand you are saying property rates are going through the roof. There are signs of contradictions, and somewhere RBI needs to do its own study.
Coming to DLF, what are your plans in the luxury residential segment?
We actually tend to provide what can be developed on a piece of property and what will find ready market. Having a pipeline visibility anywhere from five to seven to 10 years, we tend to try and reinvest our earnings in pieces of land which we think will be of value.
We start planning and actually deliver a product over a period of five to seven years. But by that time, the property is actually within which we may call prime locations in any city. And we do set the benchmarks by pure foresight and planning. Whether it is Delhi, Gurgaon, Chandigarh, Kolkata or anywhere else, I think you will find that we manage to think and invest for the long term, thereby giving a much higher return on investment to our customers. I think that is what is called luxury housing.
So, right now when you sell something to the high-end customer, will you call it luxury?
We actually call it the DLF product. Yes, it is a product in a good location, it is well made, the infrastructure remains good and we try and incorporate the best practices.
Will DLF continue with its thrust on plotted development?
The company will continue to focus both on flats and plotted development. There is a section of the population which is heavily committed to plotted development. And we cater to them.
Is DLF planning to get into the renovation of heritage properties like in the case of Delhi’s Town Hall?
It is not on our horizon. And, no such opportunity has come our way so far.
