Lodha sees strong realty sales this festival season

Lodha Group, one of the biggest land developers in Mumbai, has a total of 30 million square feet under development. Abhisheck Lodha, director, Lodha Group, in a freewheeling chat with DNA Money’s Ashish K Tiwari and Rajshri Mehta spoke about the company’s fund-raising plans and scenario in the domestic realty market.

We have been hearing about your fund-raising exercise for some time. What is happening on that front?

We continue to evaluate options but nothing has been zeroed in as of now. We had a small private equity investment of $25 million for a 26% stake in a 120 acre land parcel in Dombivli a couple of months ago. The investment is from the India fund started by the former partners of Old Lane—an investment firm earlier run by Citigroup CEO Vikram Pandit.

Are private equity investors still looking at 30-35% internal rate of return with real estate investments?
  
I don’t think anyone is looking at 30-35% annual returns because to achieve that you will have to gamble.

Any plans of taking the company public?

I’m not in a position to comment on that right now as we have certain restrictions.
What went wrong with the Finlay Mills land deal?
We did all that we could do and will now follow the process of law. We put our bid and matched the reserve price. Thereafter we received a letter of rejection and we will pursue options available under the law.

What about the Dharavi project? Do you think there is some clarity on what’s the way forward?

I’m not the government so can’t really comment on their behalf. But I think it is very likely to happen after the elections. There will always be multiple ways of looking at various issues or for that matter dealing with a development of that size. Overall, I think it will be good for the city as nobody is getting displaced and everybody is been given housing.

What is your take on the current market scenario in the realty sector?

The residential segment is quite strong. There is good demand for housing projects from the end users and prices have corrected in the region of 20-25% from the peak levels during early 2008.

Discounting is being used as a strategy to trigger absorption thereby trying to create a demand-like scenario in the market…

With respect to the idea behind launching projects at a price lower than the market, I think the last such launch was in March-April 2009. Post that nobody has launched projects below the market rate. Between January and April, realtors brought prices to levels which they thought will move the product in the market and that is about it. I don’t think any projects will be launched this September-October wherein prices will be significantly lower than the market rates.

Was it investors driving the demand or end-users making the purchase?

I firmly believe that investors enter the market last and exit first. It’s the end-user who is buying and not investors.

Are there any projects being launched even now?

There haven’t been new launches since March-April 2009. The reason being realtors generally time their new developments from February to May and take a monsoon break. As the festive season starts from September-October they get back in action. So it is quite likely that quite a few developers will announce projects in the coming months. In fact, quite a few projects have been announced in the last few days.

What is your take on land-banking as a strategy adopted by developers? You think that’s the biggest mistake that led to a downfall for most of them?

I’d definitely agree with that statement. The core activity of a developer is to develop and not just buy and hold the land parcels for long. The idea should be to buy land, develop the project, sell/lease it and move on to another project. Those who move away from that will sooner or later get into trouble. We have a very firm focus on ensuring our time to market from when we acquire the land to when we actually launch the project. In fact, today we have 30 million sq. ft. under development and are the largest developers in Mumbai.

How much are your holdings?

Between Mumbai and suburbs we have close to 4,000 acres of land.

How do you see the pre-Diwali season this year?

Pre-Diwali is certainly the most important season for developers. In fact, one-third of the sales for the year get done in the 30-45 days starting from Navratri and ending by Diwali. Prices are realistic now and common man is buying hence we feel this year it will be a very strong festive period.

Any plans of spreading out of Mumbai?

We certainly are focused on doing work in Mumbai and more than 87% of our portfolio in terms of square footage and revenue is in Mumbai. We also have some projects outside of Mumbai, including a large project in Hyderabad with HDFC Venture. There is a small high-end villa project in Lonavala and we are starting a project in Pune in the next six months.