Commercial overreach

Company officials maintain that seeking denotification of SEZs has nothing do with the liquidity crunch. “Due to the slowdown,we do not see any value proposition in going ahead with these projects. However,all our commercial projects,where construction work is on,will be completed in one year. Space in these projects have already been pre-leased,” an official,who did not wish to be quoted,said.

PULLING BACK

DLF has failed to buy a 1,000-hectare land parcel from Yamuna Expressway Industrial Development Authority (YEIDA) along the Yamuna Expressway,which was earmarked as a special development zone (SDZ). It had shown interest by paying the earnest amount of Rs 1 crore along with the application last year. According to Lalit Srivastava,chairman of YEIDA,while the cost of land was Rs 800 crore,the entire project cost was estimated at Rs 8,000 crore to 10,000 crore. However,the company failed to buy the land citing financial constraints.

The mega convention centre to be developed in Dwarka,which was expected to be the biggest in the country,was scrapped as the company felt it could not undertake it without a foreign equity partner. Earlier,speaking at the Idea Exchange programme of the Indian Express Group,DLF chairman KP Singh had said,“We are ready to revisit the project if we are allowed to rope in foreign partners for funding,including private equity players.” The Delhi convention centre was one of the four state-of-the-art facilities announced in Union Budget 2007-08. Singh said that unless the Delhi Development Authority (DDA) allowed a special purpose vehicle that would include additional equity players,the project was unlikely to take off.

The developer also exited from a 4,840-acres township project,slated to be one of the world’s largest,to be developed at Dankuni in West Bengal. According to the developer,the state government failed to acquire land for the Rs 33,000 crore public-private partnership (PPP) township project.

PENDING PROJECTS

Gurgaon,which is the stronghold of the company,has a number delayed project namely — Park Place,Belaire,Magnolias,New Town Heights and Express Green. The developer has also delayed work at some of its biggest mid-income housing projects. The construction of DLF New Town Heights in Gurgaon Sector 90 and Express Greens in sector M1 in Manesar,both in Haryana,has been halted. These projects were launched in January and August 2008 respectively. Deepak Kumar,a Singapore-based NRI,who booked a flat in January 2008 in DLF’s New Town Heights coming up in Gurgaon,said that even after paying 42.5 per cent of the total cost of the flat,he found that the developer had not started construction work. According to the developer,the project has been held up sinc it has not received environment clearance.

In the commercial segment,the developer has held back several projects namely Digital Greens,Star Mall and South Point Mall in Gurgaon. Similarly,Star Towers,a complex meant for offices,though has been completely sold out the construction is yet to be resumed,which is on hold for three years now.

DLF’s vice chairman Rajiv Singh declined to respond to the mail sent by The Indian Express on the issue of delay of several of their projects.

BUYERS UNITING IN PROTEST

After waiting for over a year and paying over 42.5 per cent of the cost,when buyers were unable to see any progress in construction,around 400 of them formed an online group called New Town Heights Yahoo Group.

Kumar,the buyer who invested in DLF’s property,raises a question: “Under which account does the money paid so far for this project exist? Or has it been invested in some other project? If it is still in the bank,then how much interest is DLF earning on the money,since the money has not been utilised towards the delivery of the project?” Five months ago when Kumar had enquired about when the project would begin,he was told that it would start in two-three weeks and the status remains the same till date. “If environment approval required to start the project was not in place,then under what clause of the agreement does the deal remain valid?” he asks.

The developer faced a similar situation in Chennai’s Garden City project,where a large number of buyers had queued up to consider the exit offer made by the developer for its 3,493 apartments. While the group of buyers claims to have mobilised 600 exit letters,DLF authorities maintain that only between 150 and 200 members have asked for the exit option. To retain buyers,the company announced a revised value proposition with an ‘early bird’ offer of Rs 2,650 per sq ft. All other charges for preferential location,parking,etc. remained unchanged. However,a number of consumers preferred to opt out of the project,despite the fact that obtaining a refund from any developer is not easy.

FURTHER LAUNCHES

The developer has further planned to launch 16 million sq ft of residential space in the current fiscal,even as it continues to have a guarded outlook. It has reduced its debt by over Rs 2,000 crore and has received another Rs 2,000 crore from group company DLF Assets Limited (DAL) in the June quarter,indicating that the company’s cash condition is fair.

While announcing the last quarter’s result of the company,Rajiv Singh said: “We are more cautious than other players as we will launch not just for selling but for adding value and making reasonable profits.”

PLUNGING NET PROFIT

Having sold a stake of 10 per cent to a clutch of investors,the promoters are sitting on Rs 3,800 crore of cash. At the end of the June 2009 quarter,receivables from DLF Assets were down to Rs 2,600 crore from nearly Rs 5,000 crore at the end of the March 2009 quarter. That has brought down the company’s net debt to around Rs 11,700 crore and consequently,the debt-equity ratio is now lower at 0.5 times. The company’s operating profit margins,in the June 2009 quarter,was 45 per cent. However,net profits,which increased 150 per cent sequentially at Rs 395 crore,came in a bit below prospect. In fact,adjusted for a one-time price reset taken in the March quarter,profits were flat.

Witnessing the state of affairs of the country’s top developer,it has become clear that homebuyers have to be very cautious while investing in property. It is not just the middle rung and small developers that are feeling the heat of the economic downturn but even the top guns. Many of them over-extended themselves during the realty boom and are now unable to deliver on their commitments. This will further delay the revival of the sector as it hits buyers’ confidence levels and market sentiment. DLF,the market leader,is as guilty as the others.

(This article is the second in the weekly series by The Indian Express that investigates the status of housing projects by various companies.)

praveen.singh@expressindia.com