In the midst of the general concern and uncertainty in the market regarding the realty sector and companies like DLF, the company’s Group Executive Director Rajeev Talwar is optimistic of a more evolved market & consistent supply in the coming years. In this exclusive with virat bahri of B&E, Talwar talks about DLF’s downturn adjustments and future vision. Some excerpts
B&E: Market reports are highlighting the fact that DLF missed its targets for FY 2009-10. What is your view of the company’s performance?
Rajeev Talwar (RT): This question (by analysts) is unreasonable on two grounds. Firstly, is it due to lack of knowledge about the recession in the developed economies, including Japan, and downturn and meltdown in the other economies? That should answer one half of your question – why the targets were missed. Secondly, real estate is a hugely complex and intricate business. People talk at times of a price bubble in booming economies. There was no price bubble (in India) at all. There was a mere gap between demand and supply. It may take a gestation period of less than an year for a particular processed product in the manufacturing sector; in this sector it takes very often 4-5 years between conception to delivery. Whenever economies boom and there is no regular supply chain, there is bound to be a price rise due to shortage of housing or office space. If the economy grows at 8%, then the CAGR of real estate sector should be around 20%. That is the reason for demand-supply gap and increase in prices and speculators coming in. On the other side, in a downturn, people’s jobs are affected, emotional security is affected; there is an immediate drop in interest to acquire. Downturn and slide is much greater in the real estate sector. We were certain that there is bound to be a tight leash on targets of sales and revenues in downturn. But expenditure targets have to be exceeded, since that is the time when you have to concentrate and focus on execution and delivery. Construction in the last 1 year, which had dropped down from peak levels of 65-70 million sq. ft. (msf), a large percentage of construction in the private sector to 40-41 msf has picked up again to around 56 msf. So we are focusing on execution and in better times to come they would reflect better deliveries and constant supply.
B&E: How do you see the demand scenario picking up now?
RT: A good economy which is coasting along, hopefully a good monsoon, better crops, lower inflation and pressure on RBI reduced to hike up rates and possibly to go back to a low interest economy regime – if that happens, one sees a growing confidence from consumers and strongest demand from the residential sector. A good economy will also reflect that the corporate sector is getting stronger, which will reflect itself in increased demand for office space. In retail segment, while last year’s festive season was good, a good period of economic growth will shore up confidence among people and if there is a good festive season this year, the next fiscal should see some growth signs back in the retail segment.
B&E: What potential does DLF see in middle income/affordable housing?
RT: Due to our legacy, it is high income, because our locations and plots are extremely valuable. We are taking projects and seeing to it that we launch at the most competitive levels in order to make them value for money housing. Revenue growth should come. Government talks about Rs.10 lakh and above as mid-income. In tier 1 and super metro cities, it should be probably above Rs.50 lakh. Land here is usually controlled by government or it becomes very valuable if it is in private hands too.
B&E: Market reports are highlighting the fact that DLF missed its targets for FY 2009-10. What is your view of the company’s performance?
Rajeev Talwar (RT): This question (by analysts) is unreasonable on two grounds. Firstly, is it due to lack of knowledge about the recession in the developed economies, including Japan, and downturn and meltdown in the other economies? That should answer one half of your question – why the targets were missed. Secondly, real estate is a hugely complex and intricate business. People talk at times of a price bubble in booming economies. There was no price bubble (in India) at all. There was a mere gap between demand and supply. It may take a gestation period of less than an year for a particular processed product in the manufacturing sector; in this sector it takes very often 4-5 years between conception to delivery. Whenever economies boom and there is no regular supply chain, there is bound to be a price rise due to shortage of housing or office space. If the economy grows at 8%, then the CAGR of real estate sector should be around 20%. That is the reason for demand-supply gap and increase in prices and speculators coming in. On the other side, in a downturn, people’s jobs are affected, emotional security is affected; there is an immediate drop in interest to acquire. Downturn and slide is much greater in the real estate sector. We were certain that there is bound to be a tight leash on targets of sales and revenues in downturn. But expenditure targets have to be exceeded, since that is the time when you have to concentrate and focus on execution and delivery. Construction in the last 1 year, which had dropped down from peak levels of 65-70 million sq. ft. (msf), a large percentage of construction in the private sector to 40-41 msf has picked up again to around 56 msf. So we are focusing on execution and in better times to come they would reflect better deliveries and constant supply.
B&E: How do you see the demand scenario picking up now?
RT: A good economy which is coasting along, hopefully a good monsoon, better crops, lower inflation and pressure on RBI reduced to hike up rates and possibly to go back to a low interest economy regime – if that happens, one sees a growing confidence from consumers and strongest demand from the residential sector. A good economy will also reflect that the corporate sector is getting stronger, which will reflect itself in increased demand for office space. In retail segment, while last year’s festive season was good, a good period of economic growth will shore up confidence among people and if there is a good festive season this year, the next fiscal should see some growth signs back in the retail segment.
B&E: What potential does DLF see in middle income/affordable housing?
RT: Due to our legacy, it is high income, because our locations and plots are extremely valuable. We are taking projects and seeing to it that we launch at the most competitive levels in order to make them value for money housing. Revenue growth should come. Government talks about Rs.10 lakh and above as mid-income. In tier 1 and super metro cities, it should be probably above Rs.50 lakh. Land here is usually controlled by government or it becomes very valuable if it is in private hands too.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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