‘Govt should increase land supply to bring realty prices down in Mumbai’

Realty sector of late is known for large debts and escalating prices. DNA spoke to Vikas Oberoi, chairman and managing director of the newly listed entity Oberoi Constructions, about the industry scenario and his company’s plans. Excerpts from the interview:

After the festive season, how does the balance-sheet look like?
We have done sales of over Rs850 crore at our Exquisite project in Goregaon and this is the fastest Rs1,000 crore in a single project for us. It has not even taken us 8-9 months to reach these numbers. So either the location has hit the tipping point or the company, but largely people are thronging to move here. They like the mall and everything we have put together.

Do you think prices in Mumbai will fall after the RBI intervention and rate hikes?
As a developer I do not want the prices to go up. Obviously I do want to make money, but then I am paying more for raw materials, so I am charging more for the finished product. RBI wants to increase savings, that’s why it is increasing the rates, which is a deterrent to buy anything or everything. If the government really wants prices to come down, it will have to increase the supply of land, which would result in prices coming down.

Land auctions are happening at high rates; wouldn’t the future product quote a higher price tag?
NTC is a government company and it has 30 more properties. Why don’t they auction all of them together and increase land supply so that it reduces the pressure on prices? NTC is getting excited about getting Rs1,500 crore for a property it wants to auction at Rs850 crore and the next day it wants to increase it. If the government is serious about reducing prices it should instruct NTC to auction all its lands at one go. There is so much supply in Mumbai and there will be so much money that will go into buying. Developers would be under pressure to build and sell it cheaper. They can put a condition that you have to buy and build and sell in the next four years. The developer will also know that he has to build and sell in that stipulated time, so he’ll quickly sell.

Prices in Lower Parel have yet not seen a southbound trail…
Because NTC continues to sell at a gap of 8 months to 1 year and keeps increasing the prices. If my replacement cost is expensive than what I am selling then why should I sell. In Mumbai we need to build infrastructure which would increase the speed of travel and increase the uniformity in pricing as far as locations go. Look at what Delhi has done; it’s got Gurgaon, Noida it’s all opening up. If we do the same thing and open NH8 within 20 kms, we will have so much of residential space available.

What is the status of your Worli project?
We have received expression of interest from top quality contractors across the world. I want to bring in a contractor who has a proven track record of building tall buildings within a stipulated time, that’s why we have put in an international tender bid. We are also doing a branded residency and once we have the operator in place for the same we plan to launch the project in February-April next year. The operator will market the project and decide the buyer and offer its services, a la carte. The common area will be maintained by them like the Mandarin has done MO at One Hyde Park in London, ST Ridges has done one in Singapore.

How is the launch pipeline for this fiscal?
In Goregaon the work on Exquisite II will start; we also have a new project called Exquisite Grande, which has taken off well and has garnered Rs100 crore sales in less than a month. Exquisite, all put together, is a 5.5 million square feet project of which we have already started construction for 1.4 million sft, and the next phase of 1.4 million sft will start this quarter. All this will be in action by June-September next calendar year. Grande is a small project of 3 lakh sft.

Are you buying Transfer of Development Rights (TDR) at Rs3,000-3,500 per sft as prices for TDR have started shooting up with the new ruling not coming as a notification?
We are buying TDR from the market. TDR is still available at Rs2,000-2,500 per sft. The notification for reducing prices is with the state cabinet which has to approve it. This is a great step and developers and buyers would get relief. Nobody will make a loss and sell it; tomorrow if the TDR goes to Rs5,000 psft the buyer will have to pay it, not that it goes to my account, but I will have to charge him. The notification would take a month-and-a-half at the maximum.

Has the IPO money started moving out of your books?
We are waiting for the right property. We are sitting on Rs1,500 crore and if we want to buy land and we need more money than what has been allocated, we will look at debt. The gearing in the company will be very low and we will look at a very long-term debt only. I have a rental income of Rs125 crore and if I discount it for next ten years I will get another Rs1,000 crore from that. I am sitting on a kitty of virtually Rs2,500 crore, this is not debt per se because the repayment is taken care of by rent receivables and there is no stress on my balance-sheet as such.

Are you looking at price increases?
In Goregaon we are selling Oberoi Woods at Rs18,000 psft and we are not facing resistance at Rs12,000 psft for new launches. If you build a quality and right product people are willing to put their money in it, we are looking at stable prices and large volumes. We are looking at Mumbai and Thane. But wherever new land would be purchased, margins would be lower.