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Realtors Focus On Execution, Finally

17 February, 2012

Property developers are finally gearing up to do what they are supposed to do, constructing buildings. Many pending projects, which were launched nearly 6-7 years ago but got delayed, are now being revived as realtors are running out of non-core business activities like buying and selling land to generate cash flow.

Developers typically promise execution in 3-4 years, but many of the projects are running behind schedule. According to data released by property consultant Jones Lang LaSalle India, approximately 63 projects totalling 41,088 units (with some units handed over to buyers while the overall project continues to languish) in the northern region, launched between 2005 and 2007, are still awaiting completion. The list includes both large and small & mid-size developers, including Unitech, Parsvnath, Omaxe and BPTP, to name a few.

Out of these, around 10 projects with 9,000 residential units have been delayed by over six years. These include projects where possession of a small percentage of units has been handed over while most of the project remains incomplete.

Santosh Kumar, CEO (Operations) of Jones Lang LaSalle India, says, “Lack of foresight and a reckless ‘me-too’ attitude by developers led to a large percentage of these projects being delayed for occupancy. Many of them, launched in 2005-06 with assurances of possession by 2008-2009, are yet to be completed.”

Take DLF, the largest realtor according to market capitalisation. It had launched its luxury residential project Belaire in Sector 53 in Gurgaon during the first quarter of 2006. But six years down the line, the project’s delivery is still awaited. DLF has recently inked contracts with construction major Larsen and Toubro (L&T) and Shapoorji and Pallonji, to fast-track its deliveries.

The company attributed one of the key reasons for its poor financial performance last quarter to projects running behind schedule due to changeover from in-house construction to third parties. According to the DLF spokesperson, “We are outsourcing all construction-intensive activities to third parties in order to improve the pace of construction, thereby increasing the operating cash flows linked to construction milestones.”

DLF plans to deliver 12 million sq. ft. of development by the end of fiscal 2012 across Gurgaon, Delhi and Chennai, and a similar space is expected during 2012-13. At present, it is executing projects aggregating to 44.9 million sq. ft. across the country.

Unitech, the third largest player according to market cap and one of the key players in the northern belt, is also focusing on completion of projects.

Ajay Chandra, managing director of Unitech Ltd, said after the firm’s Q3 FY12 results, “The company’s immediate priority is to increase the construction activity at its project sites. Business environment remained challenging during the quarter, affecting the company’s ability to scale up the construction activity. Towards the end of the quarter, though, there have been some early signs of improvement in the environment.”

Unitech delivered 2.9 million sq. ft. for the quarter. According to the data available, the company launched 7.17 million sq. ft. during April-December period in 2011 and it managed to sell 5.40 million sq. ft. Unitech is yet to deliver 12.1 million sq. ft. to home-buyers who had booked projects before March 2009.

A senior research analyst who did not wish to be named, said, “Broadly speaking, developers are not able to launch big ticket projects and they want money from their existing investors, which will only come if there is construction on these projects. Otherwise, banks will not pay them.”

According to him, Indian developers follow percentage completion method and they cannot book numbers until the projects reach a certain level. “So right now, everyone is looking at executing projects as soon as possible.”


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Realtors Focus On Execution, Finally

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