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Explained | How DLF sold premium flats worth Rs 700 crore in one day

Only a handful of developers have the ability to complete a residential project and then launch it without relying on customer advances

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Prominent real estate developer DLF in Delhi-NCR recently clocked over Rs 700 crore on the day of the launch of its new ready-to-move-in project. What's significant is the apartments were priced Rs 1.6 crore onwards - almost at a 20-to-25 percent premium compared to projects in the surrounding areas.

DLF's successful sale implied that buyers are willing to pay a premium for lower risk and developer brand.

It is worth pointing out here that no GST is charged for such projects as completion certificate is already in place and the project is also free from several regulatory constraints of RERA.


The question here is whether the successful launch of a completed or a premium project is a trend in a cash-strapped, slow-moving real estate market. Will one witness a slew of ready-to-move-in launches by developers active in the high-end segment going forward?

For starters, it is important to mention that this is more of an exception rather than the rule as it involves a prominent builder in the NCR where both its “development and rental entities have positive and growing free cash flow with embedded land assets that can sustain growth for an extended period of time without any need for additional capital,” according to JP Morgan.

What this means is that while it makes sense for developers to launch sales in the ready-to-move stage as it frees them from the regulatory constraints of RERA and provides them better pricing power as well, only a handful of developers today have the ability to complete a residential building and then launch it subsequently.

“This is more an exception than a trend,” say real estate experts, adding liquidity would continue to remain a challenge for marginal or for that matter unorganised realty players.

The strategy is ‘brilliant’ and sends out a message that for the right formula, there is still appetite in the market. Having said that, this is more an exception rather than the rule. If a pedigreed developer launches a ready-to-move-in, quality, value-for-money product in the market, there will be demand for it, says Anckur Srivastavva of GenReal Advisers.

This recent launch by DLF also indicates that a large set of buyers are “risk averse and we expect the overall sales cycle of real estate project to see major changes. Earlier, it was around 10%-15% of projects units which used to remain unsold by the time the project is completed. Now we expect, projects to witness a healthy sales of around over 25% post-completion,” explains Ashoo Mishra, Director (Corporate Ratings), India Ratings and Research (Fitch Group).

Another reason for this change is the fact that real estate prices have not moved-up meaningfully of late which enable the end users to wait for project completion without being worried too much about increase in prices, he says.

Customer preference in the premium and luxury segments has been shifting towards ready-to-move inventory due to concerns around developers' ability to complete projects in a timely fashion as well as the GST rate differential between under-construction and completed projects.

Consequently, sales in such projects have become more back-ended. In this context, it makes sense for developers to launch sales in a ready-to-move stage as it frees them from the regulatory constraints of RERA and provides them better pricing power as well.

Nonetheless, it may not be possible for all developers to adopt such a strategy as it requires significant working capital to bring the project to the completion stage without relying on customer advances, says Mathew Kurian Eranat, VP and Associate Head, Corporate Ratings, ICRA.

Moreover, developers would be undertaking high market risk with this strategy, which may not be prudent unless they are sure of the demand prospects in the project location. Availing construction finance loans will be equally challenging considering the high marketing risks involved. Nevertheless, developers with an established sales track record may get favourable consideration from lenders for such funding requirements, he says.

Anuj Puri, chairman -  ANAROCK Property Consultants, agrees that in the short term, overall demand for ready homes will continue to remain high across budget segments and cities. This is particularly true of NCR where lakhs of homebuyers are still awaiting possession of their properties.

ANAROCK's H1 2019 consumer sentiment survey also highlighted that 36% property seekers preferred ready-to-move-in homes, followed by 24% looking for properties that are slated to complete within the next 6 months. This indicates the clear preference of home seekers.

Meanwhile, out of the overall unsold inventory (of approx. 6.56 lakh units) in top 7 cities, nearly 81,300 are already complete. Of these ready homes, nearly 10,000 units (or 12%) are in the premium segment priced above Rs 1.5 crore.

A recent report by JLL has also pointed out that the slowdown in completion of projects is not across the entire spectrum of housing categories but significantly visible in upper-mid and premium categories. JLL Research’s data indicates that the total number of residential units classified as delayed or stalled in the top seven cites stands at 4.54 lakh.

However, 84 percent of these units are present in two major metro cities of Delhi NCR (62%) and Mumbai (22%). The percentage share of rest of the cities is in single digit.

Is the ready-to-move-in apartments trend here to stay?

Would all developers emulate this trend of launching ready-to-move-in units? Certainly not.

Real estate experts caution that the market would have to evaluate the project in the next six months for the number of cancellations that may take place. This would clearly indicate the number of people who actually move in for end use and those who invested for investment sake, says Srivasttava.

This raises another pertinent question. If these are all end-users pushing the ‘buy’ button, where were these high-end buyers all this while? Does the euphoria over this product launch herald the return of the investor? What would happen in the next six months if these investors do not witness any capital appreciation or get handsome rental returns?

The picture is bound to be clear in the next six months, he says.

What should be done to improve demand going forward?

For definitive and long-term demand creation, meaningful price correction is a must. GST relief or reduction in registration fees could be a component of price correction, say experts.

Improvement in demand and pricing in premium and luxury segments will be linked to favourable developments in the overall market conditions, including better customer confidence and pick-up in broader macro-economic activity. Customer expectations on future price movements also influence purchase decisions; as of now, the price appreciation expectations are moderated by demand-supply mismatches.

To support demand growth it is also important to ensure resolution of the stuck projects which can revive customer confidence and trust in the developers. Measures such as the last mile funding scheme announced for affordable housing projects may be evaluated for all projects to resolve stuck projects. Some of the tax incentives available to affordable housing customers, if extended to all housing units, can also support improvement in demand, says Mathew Kurian Eranat.

Vikas Chimakurthy, chief executive officer, Kotak Realty Fund, is of the opinion that potential measures for increasing demand for ongoing projects could include full interest (on mortgage financing) to be allowed as tax deductible against income and waiving off stamp duty and registration in NCR and Mumbai for residential projects as almost 80 percent of stuck projects are in these cities.

Project NameDeveloper NameCityLaunched UnitsCurrent Price (INR/sq. ft.)
Raymond Realty Premium IRaymond LimitedThane7516,500
DSR GVK SkycityDSR SSC Builders and DevelopersHyderabad989,500
Wadhwa Magnolia Cluster 2Wadhwa ResidencyNavi Mumbai6610,500
Pride Purple Park Grandeur Phase IIPride Purple GroupPune5722,100
Baashyaam Plutus ResidenceBaashyaam Constructions Pvt LtdChennai15211,800
Godrej South EstateGodrej Properties LimitedDelhi37216,500
DLF Ultima Phase IIDLF GroupGurgaon5047,150
Source: ANAROCK Research
First Published on Oct 18, 2019 08:14 pm