DLF plans to complete structure before putting property on sale

With the sales of residential units having fallen in eight of the past nine quarters, DLF is looking to change the way it sells to customers. The company said it plans to complete the super-structure first before it puts any property on sale.

In the first half of FY16, DLF has been able to sell only 0.5 million sq ft of residential real estate, a 50% decline compared to sale of 1 million sq ft in the same period last year. “We have already started examining a new model, where the project will be launched only after completing the super-structure,” DLF chief executive officer Rajeev Talwar said.

He addded that most consumer complaints relate to land titles, approvals, charges post sales and delays. DLF remains highly leveraged with a net consolidated debt of R22,520 crore, while its market value has tumbled from the peak of R1,114 in October 2008. In the current financial year, DLF’s stock price has come down from R159.6 at the start of the year to R95.65.

Analysts estimate the residential sales for the company at around 2.1 million sq ft in 2015-16, slightly lower than the 2.3 million sq ft in 2014-15 due to continued low demand for residential properties across markets. This will also have an impact on the inventory levels for the company. Axis capital estimates the consolidated inventory levels to rise further to R19,739.8 crore by FY16 end, compared to R17,743.1 crore at the end of FY15.

Traditionally, a developer opens a project for bookings as soon as acquiring the land, and a building approval is in place. The money that comes in from the initial bookings is then utilised for further progress of the construction. DLF said it would bear the initial expenses to develop the property. DLF plans to buy the land, and then rope in a private equity or fund as an investor until the super structure is built and put up for sale, Talwar said.

One estimate puts the country wide inventory level to be around 4.8 lakh units, of which close to 1.8 lakh are in the National Capital region alone. It could take nearly 3-5 years for the inventory to be cleared. According an Axis Capital analysis, continued high prices have led to decline in absorption by approximately 4% on year in key cities in India during January-September period of 2015. This has forced developers to hold back new launches, which have seen a decline of 11%.

At the same time developers are facing the buyers’ as well as consumer dispute redressal forums’ ire for not handing over residential properties on time. Earlier this month, a Delhi court sent top management officials of Unitech to a 14-day judicial custody on the charges of alleged cheating. However, they succeeded in securing interim bail after they gave an undertaking that they will honour the order of a State Consumer Forum and settle all the pending dues to the complainants. The proposed proposed Real Estate (Regulation and Development) Bill, which is being seen as a pro-buyer move by analysts, is also expected to lay down stricter guidelines for developers.

DLF is likely to adopt the new strategy starting with two upcoming projects in the national capital for which it has got Rs 1,992 crore GIC at the project level. These two upcoming projects are adjacent to its existing project Capital Green at Moti Nagar in Delhi.