Unitech to focus on Mumbai slums

In a bid to arrest falling operating margins, real estate developer Unitech Ltd has decided to solely focus on Mumbai slum rehabilitation projects instead of luxury projects in Delhi or Gurgaon.

The developer, with its joint venture partners Shivalik Ventures and Unitech-Omkar, will only take up residential projects in Mumbai through the slum rehabilitation route.
A company official, on condition of anonymity, indicated that strong demand for residential properties and a low-cost entry in Mumbai would more than compensate for the margins lost in luxury projects in the national capital region (NCR).

Unitech’s local partners in Mumbai will help the developer in acquiring, clearing and rehabilitating slums, while Unitech will aid the financing, project management and marketing part of the business.

The New Delhi-based developer’s current land bank in Mumbai is over 320 acres with overall development potential of 35-40 million sq ft. In order to fund its existing operation in Mumbai, Unitech recently pre-launched and sold around 2 million sq ft from one of its projects in Worli at a massive 36% discount on the prevailing market rates.

Unitech is expecting to maintain margins at a healthy range of 40-45% in the housing segment as it rebalances its portfolio towards slum rehabilitation projects in Mumbai. The company expects Mumbai to contribute 20% to its revenue post fiscal 2012.

The company is expecting gross margins of 67% from the Worli project compared with 51% and 57% from Noida and Gurgaon, respectively. Unitech’s slum rehabilitation project covers more than 60,000 families. It has already obtained letters of intent (LoIs) for more than 5m sq ft of saleable area.

The developer is also looking to launch residential projects in Hyderabad, Siliguri and Vishakhapatnam by the end of fiscal 2010. The company has shifted to construction-linked payment plan. It expects to receive about 30% of the money prior to starting construction, which would be sufficient for initial construction.

Unitech has also put up 200 acres of school and industrial plots in the NCR for sale, along with other hotel properties to reduce its debt. It has already repaid Rs 2,400 crore in the first half of this year and is looking to pay off Rs 500 crore more by the end of this fiscal from the proceeds of its sale of non-core assets and cash flow from operations.