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HDIL's land bank is Mumbai-centric: Knight Frank

Published on Thu, Jun 28, 2007 at 12:43 | Source : Moneycontrol.com

Updated at Thu, Jun 28, 2007 at 15:15

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HDIL's IPO is opening today. It has been priced in the range of Rs 430-500 a share. Pranay Vakil , Chairman, Knight Frank, said HDIL's land bank is Mumbai-centric.

He believes that property prices and demand may soften over the next two-to-three months. He sees prices cooling off by 10-15% in Mumbai.

Going forward, appreciation in both Vasai and Virar will be better, Vakil added. According to him, HDIL has valuable assets.

Excerpts from CNBC-TV18's exclusive interview with Pranay Vakil:

Q: HDIL has disclosed 112 million sq ft of land in its prospectus. The bulk of which is in Mumbai. How have you valued this land?

A: It is not possible for me to get into absolute details of the valuations. It is a Mumbai-centric proposal. It has a lot of land in Mumbai and in the suburbs. It is a large piece of land and is capable of being developed into multi-use kind of developments. Looking at the location and size, it is a very valuable asset.

Q: Some people believe that as the land is in the Vasai-Virar region, it is not prime property in terms of development prospects. How do you expect property prices to pan out in that region and in the rest of the region where they have their properties?

A: Mumbai is a peninsula and is surrounded by sea. The only place where Mumbai can really grow is northwards, which means the Vasai-Virar region and all such places to the north of Mumbai. When one talks about growth in the north, it can either be in the central or western suburbs. The western suburbs have traditionally been more expensive than the central suburbs.

Both Vasai and Virar happen to fall in the western suburbs and the appreciation there is likely to be a shade better than that seen on the central suburbs. For the past several years, western suburbs have grown better than their central counterparts.

Q: The Draft Red Herring Prospectus said the project would take about five years to complete. Deepak Parekh has gone on record saying that he is already seeing realty prices coming down. This is a five-year term. Did you factor in any fall or rise in prices when you valued those 32 projects at about Rs 21,000 crore?

A: One of the recent developments, which will probably have a bearing on prices, is the Dharavi redevelopment. It is going to put 20 million sq ft of commercial space and another 20 million sq ft of residential space in the market. All of that is going to happen within the next five to seven years.

If the international tenders and expression of interests do come out, and those contracts are awarded, the supply situation in central Mumbai is likely to undergo a major change.

This could have a ripple effect on peripheral locations like Vasai-Virar. To an extent, it is dependent on the Dharavi redevelopment as it is going to add a lot of sq ft to Mumbai city.

Q: Did you factor in an appreciation or fall in prices when you came to that Rs 21,000 crore figure?

A: Each of these lands have been valued separately, taking into account the surrounding developments and other developed industries in that area.

There are two or three macro factors like the trans-harbour bridge. It is difficult to say with certainty when the bridge will come up but it will have a tremendous bearing on prices in Mumbai. We are talking about an area, which is three times the size of Mumbai, opening up on the other side, with a 20-minute access to that particular land. There is also the Bandra-Worli Sea Link, which is behind schedule by a number of years.

Prices will soften if some of these infrastructure development projects do come up the way they are visualized. The good thing is that the supply situation is being addressed with these upcoming infrastructure projects taking shape.

On a macro basis, some of these things have been factored-in. On a micro basis, only those factors are taken that affect that region or area per se.

Q: How much do you see prices falling by in future, in light of supply that is likely to come in?

A: In certain areas, where the supply has been substantial, there will be a reduction in the next three months, between now and Diwali, of about 15-20%. But come Diwali, prices might stabilize or prices coming back to normal. It depends to some extent on how the stock market behaves.

Assuming that the Sensex touches 15,000, some people may decide to book profits and invest that money in real estate. That is something, which cannot be factored in all the time. Assuming that other things remain the same and these factors do not change for the next three months, there is going to be a softening of both volumes and prices.