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DLF Ltd has struck a note of caution on demand environment in the real estate sector, flagging issues such as interest rate hike, funding constraints, lack of private equity (PE) interest and the proposed land acquisition Bill.
In a presentation to analysts after reporting Q1 earnings, DLF noted that the overall demand in the sector was showing signs of “moderation”, in residential and office spaces.
With regard to non-core asset divestment — the proceeds of which will go towards debt reduction — DLF told analysts that it is hopeful of finalising at least two transactions in the September quarter.
The company's net debt stood at Rs 21,524 crore as on June 2011, Rs 100 crore more than the Rs 21,424 crore as on March 2011.
To prune its debt, the company has set a target of Rs 6,000-7,000 crore over the next two-three years to be realised from divestment of non-core assets (essentially sale of land parcels and hotel plots). DLF said it is on track to meet that target.
Citing lower office space leasing volumes and lack of clarity on the SEZ development front, DLF said fresh launches in office and retail segments were minimal. However, on the flip side, this would correct the demand-supply gap overtime, it added.
The analyst presentation further pointed out that the residential market was weighed down by fewer launches, flat-to-marginal price appreciation (given the prevailing mortgage rate), and builders' inability to pass on input price inflation pressure to customers.
To counter this, DLF plans to continue its strategy of selling plots on which the buyer can build. Plotted development, it said, tends to be less construction intensive and poses lower inflationary risks. “Plotted sales (essentially sale of plots instead of developed flats) will be dominant portion of our product sell out in the next 18-24 months,” the company said.
The recent issues in land acquisition and the proposed land acquisition Bill may “adversely impact land acquisition for urban and industrial development”. However, the exact implication will be evaluated only on finalisation of the policy, it added.
DLF clarified that it did not foresee the land acquisition disputes at Greater Noida spilling over to Gurgaon or affecting its own projects. This is because in most cases the company has negotiated and bought land directly from farmers by paying market price.
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