All launched projects sold; see sales pick-up in Q3: DLF

Objecting to reports that suggest real estate compaies have alarming levels of inventories, Saurabh Chawla, senior vice president VP Finance, DLF, clarifies that the company is not sitting on any launched projects.

Speaking to CNBC-TV18, Chawla says the company has sold almost 100 percent of whatever projects it launched and hence, is inventory free. “When a project is launched whatever is not sold comes as inventory. If the project is not launched then there is no inventory,” he adds.

Chawla, further expects sales to pick up in Q3 on the back of the festive season. Also read: Won't offer discounts; realty isn't saturated yet: S Raheja Below is the edited transcript of Chawla’s interview to CNBC-TV18.

Q: Give us an idea of how sales panned out in the September quarter, more importantly how it looks like panning out; what are the trends you are seeing for the festive quarter?
A: Usually, the first half is not the busy season. The busy season starts in the second half but even in the first half we did one major launch in phase five of Gurgaon which was met well in the market. These were at price points which were much higher than what the secondary market quotes of the properties were.
Hence, there is inherent demand in various micro markets. It all depends upon what the supply levels are but as a sector as a whole, I do not think that the second quarter will be great other than some of the players out of Bangalore because Bangalore market has started to do well. The excess capacity has got absorbed over the last two odd years in Bangalore. We see much better traction of volumes in Bangalore but generally, it will be a quiet quarter, the second quarter as such. We will see the real pick-up in the third quarter because that is the festival season and everybody start to make big ticket purchases in this quarter. Q: I asked you about sales because the big news that we are getting from the real estate space is the inventory build-up. We are told that for the country as a whole it is at 2007 highs as well for Mumbai it is at old highs. What are you sitting on and is this unusually high inventory that you have seen in DLF in your time?
A: We are not sitting on any inventory, so the definition of inventory needs to be carefully put across. When a project is launched whatever is not sold comes as inventory. If the project is not launched then there is no inventory. So, whatever projects we have launched over the last six-nine months, we have sold almost 100 percent of whatever we have launched. So, we are not sitting on any inventory.
We are looking at new launches and let's see how they get absorbed and whether inventory gets created over there. The critical aspect is what the risk on the cash flows is when one has inventory on your books.
As DLF sells out 100 percent of every launch, we do not carry that risk on the construction side of it and there is no issue as far as we are concerned but there are many developers who sell 20-30 percent of a launch and then for them the balance aspect of it becomes crucial for the success of that particular construction spends. So, one needs to distinguish between the two. 

Q: Reports suggest that the company might sell couple of its southern projects about 900 crore of non core assets to the development arm of Shriram Group. Is that something that DLF is actively considering and is it on the radar?
A: We are not considering any such transaction. It is very speculative news and we do not comment on speculative news. Q: Is there an improved demand coming from the non-resident Indian (NRI) community because there was a lot of talk especially when rupee depreciated very sharply that NRIs are seizing the opportunity. Is that a new trend, can you quantify that for your own properties?
A: We do not specifically target NRIs. Our business model has evolved since mid-90s when a lot of NRIs in the Middle East used to invest in properties specially in the National Capital Region (NCR).
Our target segments are the urban rich who are looking at a discerning lifestyle, so that’s what we target. However, the rupee-dollar equation makes property investment quite attractive. Let’s see how the new launches pan out in the third quarter and we can at that particular point of time see what the NRI demand is.

Q: The sector is as bad as it seems at the big picture level and whether it is bad or not what kind of path and timeframe do you see for a recovery cycle as far as the broader sector is concerned. What needs to be done, is it interest rates, is it lower prices or is it just the market being a little bit less negative on the whole setup?
A: Unfortunately, the financial media news extrapolates a broader trend which is not a case in the real estate play to the very micro market driven,
For example, in New York city’s Central Park upper west side, upper east side, the property is always available to be taken up. The absorption level is great and the property prices do not correct unlike Arizona where there is a huge supply and there is speculation and higher volatility.
Similarly, in India if one looks at the trends in various micro markets, for example Bangalore; it was a very soft market in the last two and a half to three years, but over a period of time, it was absorbed and as IT industry comes back, the volumes are coming back in that market and it is a great market to be in today.
Chennai as a market is always been very steady. It is never froth; its not momentum driven, it is actual demand driven. Hyderabad suffers from its own issues because of the political landscape over there.
In north, there are certain micro markets and very specifically, everybody paints Gurgaon with one paint brush. It is not that. In phase five, there is very low supply over there because most of the developments have already taken place.
Hence, any product that is launched in phase five of Gurgaon gets absorbed very quickly. Similarly Dwarka Expressway, which is another micro market within Gurgaon has run up very sharply and you will see developers who have those projects in that particular micro market not seeing absorption level. As a matter of fact, one is seeing a higher price correction in that particular segment of the market. So, one has to look at various micro markets and see which developer is present over there before making a judgement.
It is not a pan-India play. It is not a commodity play unlike gold that price of gold is same in Delhi and price of gold is same in Gurgaon, it doesn’t happen in the real estate space. Yes, there is pain in the system. Mumbai does not represent whole of India; there are micro markets within whole of India which are doing extremely well. There are certain micro markets in India which are going through the same pain process as Mumbai is.