Better now than ever

Better now than ever
The Hindu Business Line, May 10, 2009, Page 15

--------------------------------------------------------------------------------
The overall sentiments are changing again. Real estate is looking good and property prices have pretty much bottomed out. - KABUL CHAWLA, MD, BPTP LTD.

--------------------------------------------------------------------------------

Moumita Bakshi Chatterjee

In March 2008, BPTP Ltd took the industry by surprise when it outbid its larger rivals to clinch the biggest land deal in India. The company snapped-up 95 acres of prime commercial land at Noida, near Delhi, for Rs 5,006 crore. But the realty market crash in the months that followed saw BPTP approach the Noida Authority seeking permission to surrender the land. BPTP’s Managing Director, Mr Kabul Chawla, says that the market crash was sudden and the company soon realised that a smaller 22-acre project at the site may make more business sense.

Mr Chawla shares with Business Line the company’s plans for this year.

Excerpts from the interview:

Looking back, would you say that in bidding aggressively for the Noida land last year you grossly misjudged the real estate market?

At that point when we bid, it seemed that it had been taken for a song. Exhausting the 10 million sq.ft looked easy, and the time span to consume this was envisaged at 7-8 years. The sudden fall in the market was not anticipated. But it was important that we realised in time that we will not be able to use the entire land bank in 7-8 years. So we opted for a smaller project and retained only 22acres .

Of course, we had to pay a penalty of Rs 123 crore. But at least we are still going ahead and executing the project. Also, our cash flows are not locked-up for the future.

Is the demand in the residential market somewhat reviving? Have consumer sentiments improved in the last few weeks?

In April 2008 when the markets were turning, BPTP went out and sold about 2,500 apartments until March. Of course we re-priced the product, as we had to ensure that customers saw value add. I think real estate is a product-specific market.

The sentiments at that time were low, and people were not sure whether developers will deliver on their promises. These were the biggest challenges that we all faced.

Fortunately, we convinced our customers that we will be able to deliver.

But now the overall sentiments are changing again, and it is reflecting on the stock markets as well. I think real estate is looking good.

I believe that there is a demand-supply gap, today. A lot of supply everyone talked about earlier was not achievable.

Besides, many of the property products were not even relevant. If you build a project and there is no accessibility or social infrastructure to support it, then it is not a meaningful project. Only those projects that meet these specifications will attract demand.

Would you say that the property prices have finally bottomed out?

Yes, pretty much. Everyone has come down to margins of less than 20 per cent and people are focusing more on creating value for customers. If your customer does not make money (see appreciation in property value) he will not re-invest with you. It was a tough time for developers when property markets took a beating.

But if you need a house, now is the time to buy it.

Does BPTP plan to raise funds through private placement or an IPO?

The balance in the real-estate portfolio has ensured that we are not an overly-leveraged company today. And we are not under stress.

If we raise funds, it will be primarily for construction of Noida project where we have retained 22 acres of land, and are building a five-star hotel and an office complex. And here too, the construction cost will be less than 40 per cent of the overall product cost.

So a part of it will be funded from borrowings and part from internal accruals. We are not looking at fund-raising right now.

We are not planning an IPO this year.

In fact, I am not sure that the Indian and foreign investors still understand how real estate works in India. I do not think that maturity has come yet. Real estate is a tricky play.

Only those developers who understand the business well, have credibility with institutions, and are focused on their projects, are going to survive.

Real Estate