Targeting 3 launches in Mumbai over next yr: Mah Lifespace

Mahindra Lifespace's project launch schedule has been held up a bit due to the issues with the Mumbai Development plan. CNBC-TV18's Alexander Mathew caught up with the company's managing director and chief executive officer, Anita Arjundas in an exclusive chat and spoke about the projects that are in the pipeline.

Below is the verbatim transcript of the interview to CNBC-TV18.Q: It's a question being raised in different quarters. Just last week the RBI Governor pointed out that perhaps it is time for developers to consider cutting prices to clear residential inventory. Is a price correction possible at this stage, and if so, to what extent?A: There's no disputing that demand is sluggish. And I think that's driven largely by the fact that consumer confidence is still not on the table at least as far as real estate is concerned. Real estate is often a lag indicator, not a lead indicator. And I think as you see demand in sectors like automotive and consumer goods picking up, you will see demand in real estate pick up as well.What's also happened is--obviously a lot of investors have gone out of the market. I think the last few years, the Indian real estate maket has definitely seen many investors coming in. And that has accounted for some part of the demand coming in. They have exited either because for some period of time the stock market was more interesting, or because they had a lot of exposure to real estate.Prices have been pretty stable for the past couple of years. So various motivations for investors to step out. The end user is still there, the end user is still interested in buying a home. But they are largely in a wait and watch mode.A part of the wait and watch is driven by a lot of noise if I may say, which is out there in the market place. And I think what we need to recognise is that prices in a sense have already corrected. There has already been a time correction to prices...Q: Is that how it's going to play out over the next two years? Will there continue to be a time correction, or will there be a price correction as some reports have stated?A: So my view is that there will be time correction, not so much price correction, but having said that there will be some level of price correction--project specific, market specific, developer specific, which is more discounts, based on how much stock somebody has, how much of that is nearing completion, does the developer have any financial issues that he needs to address. Is there something that they need to put on the table to close deals.But, I think beyond time discount, I don't really see the kind of numbers that are being put out--say a 50% correction taking place.You need to at the end of the day also look at the economics of the business. The fact of the matter is land prices have not come down, construction costs have gone up, prices are stable, the approval regime hasn't been exactly exciting... Borrowing costs for most developers have gone up because of the concern over the asset class of real estate, the fact that banks are not lending for land. Most people are today borrowing from NBFCs or bringing in private equity structured deals, which are almost at 18-24% kind of carrying cost.Q: Can you give us an idea of the level of discounting currently being seen in markets like NCR and Mumbai?A: So the discounting I would say is in the range of between 5% and 15% depending on the kind of product discount that's being put out. So in certain situations you have stamp duty being absorbed by the developer, a free carpark, somebody is talking about getting a certain area in the house free. There's somebody else who is talking about interest subvention schemes, where the developer is taking the pre-EMIs.Q: Mahindra Lifespace Developers is very keen on affordable housing. That's visible through its project HappyNest. One of the major stumbling blocks for affordable housing is scale. How do you plan to achieve sale, do you have a number in mind for affordable housing units?A: So we don't normally put a number out in terms of how many we will build or construct over a period of time. Today we are at a situation where we have about 2,500 homes under development between the two projects we've put up as pilots. We've launched about 1,500 of those, we've sold about 800 of those, and will finish both those projects over the next year.We'd like to see ourselves being able to at any point in time have 20,000-25,000 homes under construction at any point in time, as a reference point of what we want this business to be. We think it's a business of scale, and obviously we'd like to be there with a few 1,000 crore rupees of turnover at any point in time for it to make sense for us. It's not a number that is a forecast, but it is an aspiration for the business.Q: A lot of developers are looking at the Real Estate (Regulatory) Bill as a positive, because they feel that once that comes into play they can then demand quicker redressal of problems such as approvals. Is that a view you subscribe to?A: Unfortunately the bill doesn't deal with approvals. It looks at approvals as a State subject. From our perspective, I'm not so concerned the fact that you need to get approvals before you launch a project, because we anyway follow that as part of an internal process. So we've already built into our internal process the fact that we have to wait for 12-18 months, get the approvals and then launch.But approvals don't start and stop with only pre-approvals before you launch, which is what the bill is talking about. You also have other approvals like the plinth approval certificate, which are required at different levels of construction. The biggest approval that you need is after you finish, which is the occupancy certificate. And that's a large struggle. It takes several months to get an occupancy certificate. So you may have commited 36 months to a customer. You could have finished your project in 33 months, and applied for the approvals and sometimes you're sitting and waiting for an occupancy certificate for 6-9 months.We have a live situation in one of our projects in the north where the building is ready and completed and so we're maintaining the building at our cost because we're not able to call in customers to take delivery, because we don't have an occupancy certificate. Something like this is a lose-lose situation for all concerned.So I think it's fine to say that regulation is the only aspect the regulatory bill is going to look at but I think there is a certain structural responsibility that is needed in terms of interventions that are required to be able to push the agenda forward on bringing home costs lower.Q: How many projects do you plan to launch this financial year, and in what localities are you planning to launch them?A: We had four launches last year and one at the beginning of this year. I'm not counting phases of existing projects, which keeps happening continuously, and there will be many of those.In terms of way forward, today we're currently working on three new projects. All of them happen to be in Mumbai. One was a land parcel we acquired in Andheri a couple of years back. Another is a parcel we acquired in Sakinaka a little under a year back and both have had their set of issues around the Development Plan, which is why we've been delayed on the launch. So a little difficult to put a timeline to it, but we're hoping to be out there in the next 12 months. And the third is a small land parcel we have in Kandivali, which we've just started designing on. So I would say three launches in Mumbai over the next year.Besides that we are at a stage today, where we do not have other new land parcels that we're working on from a development perspective. There are lands that we're focussing on acquiring. We're looking at Bangalore, Pune and Hyderabad.We have discussions that are under different stages. Some land parcels are under due diligence, while some have just entered into an MoU.Q: You normally acquire land for a period of three to five years of development. At what stage are you at right now?A: Our active inventory we have today, we're talking about 5,000 crore rupees of stock that we have across different projects that is yet to be sold. We had a runrate last year of about 700 crores in terms of sales that was done. Obviously it was a year where we had a lot of launches happening, but most of them were back ended. They happened in the last few months of the year. So we would like to see that number growing significantly over the next few years.