DLF Market cap (Rs cr) As on 8 January ‘08: 1,96,160 As on 7 May ‘09: 41,573 Fall: 78.7 % UNITECH Market cap (Rs cr) As on 8 January ‘08: 85,837 As on 7 May ‘09: 7,110 Fall: 87 % HDIL Housing Development & Infrastracture Market cap (Rs cr) As on 8 January ‘08: 25,932 As on 7 May ‘09: 4,227 Fall: 81.9 %

BEHIND SCHEDULE: (From left) DLF’s Parel mill project, Mumbai; Unitech’s Nirvana project, Gurgaon; HDIL’s airport rehab project, Mumbai; and (below) Indiabulls’ Jupiter Mills project, Mumbai. These are the top four real estate companies by market cap.

The first two results of realty companies for the Jan-March 2009 quarter— one big, one small — has confirmed the worst fears of industry watchers: property buying is a frozen glacier. On the one hand, India’s biggest real estate developer, Gurgaon-based DLF, suffered the discomfiture of seeing its net profits plummet 93 per cent to Rs 159 crore, and its sales skid 69 per cent to Rs 1,321 crore compared to the previous year’s last quarter. On the other hand, there is Bangalore-based Puravankara Projects, tiny compared to a DLF but with an uncannily similar performance — net profit fell by a humungous 81 per cent to Rs 14.6 crore, and sales fell 55 per cent to Rs 68 crore from the year-ago figure. Even compared to the immediate previous quarter of September-December 2008, which was considered the worst in a decade, sales have crashed by 18 per cent for DLF, and by 15 per cent for Puravankara. So much so that DLF’s promoters are reportedly selling 6-7 per cent stake in the company to raise Rs 2,000-2,500 crore to pay off some pressing dues.

INDIABULLS Real Estate Market cap (Rs cr) As on 8 January ‘08: 18,599 As on 7 May ‘09: 3,378 Fall: 80.2 %

Similarly, Delhi-based Unitech has launched several new projects including Uniworld Gardens II in Gurgaon Sector 47 and Ananda at North Town, Chennai, at attractive prices. Its old projects, though, are yet to be completed. It even faced street protests from 350 flat owners of its World Spa project in Gurgaon, who have paid 95 per cent of the cost but are yet to get delivery, despite a three-year delay.

A research analyst with a foreign institutional investor who recently toured several DLF and Unitech sites in Gurgaon, says she saw cows grazing at many project locations that were supposed to be underway.

Frozen Market
Despite all the claims and hype by builders, their stock is not moving. Builders depend heavily on bookings — using the initial payment of 20 per cent to kickstart projects, and leveraging the bookings to raise loans. In the absence of bookings, they are now starved of funds. According to Pankaj Kapoor, CEO of Liases Foras, a real estate rating and research agency, there are 5,115 residential, commercial and retail projects under construction, and 339 proposed projects that have either stalled, slowed down or failed to launch across six metros (see ‘Massive Pile Up’). “The commercial/office space segment is in greatest distress with 195 million sq. ft of ready and under-construction property in the market with few takers,” says Kapoor.

Consumers began withdrawing as early as March 2008, but developers took time to come to terms with it. Flush with IPO (initial public offering) money and FDIs (foreign direct investment), they thought they could hold out till the consumer blinked. That did not happen and the shakeout began last October.

The initial resistance by builders to price cuts had to do with the way the realty boom shaped up from 2005. By October 2006, the inventory for both commercial and housing stock was at its lowest. On the other hand, there was too much money chasing too little supply. New FDI norms for realty projects in March 2005 brought in an estimated $10 billion, mostly in partnership with Indian developers. Simultaneously, closely held companies took the IPO route to raise funds. In 2007, real estate companies together raised Rs 14,591 crore, 43 per cent of all IPO money raised. There was not enough stock, nor sufficient projects to absorb this money, causing a price spiral. By March 2008, though, the consumer had stopped buying as the effects of the overall economic slowdown had begun to pinch.

As consumers stopped buying and the downtrend set in, builders resorted to two rounds of price cuts. The first was last Diwali when they offered price cuts of around 10 per cent that included waiving stamp duty and offering furniture and internet connections at subsidised rates. But nobody swallowed the bait.

Second, from February 2008, there has been substantial reduction in capital values and lease rentals. For instance, in the Delhi-NCR region developers such as DLF, Supertech and JP Associates launched projects in west Delhi, Gurgaon and Noida at rates 30 per cent below what were prevailing at peak in June 2008. DLF launched a project at Rs 1,800 per sq. ft in Hyderabad, 40 per cent lower than market rates.

These tactics have not worked, except where the project is nearing completion or offers ready possession. “The buyer has tasted blood,” says Parimal Shroff, a senior lawyer with a large real estate practice. “He knows the builders are desperate to sell.” Besides, current home loan rates of 9-10 per cent, while lower than the 13-14 per cent highs of mid-2008, have still not reached 2004-05 levels of 7.5 per cent. The buyer, therefore, still sees no reason to buy.

What Is The Bottom Of The Trough?
According to Kapoor, realty prices rose three-fold over three and a half years. But the fall in prices over the past nine months has only been 31 per cent. “Prices are poised to fall by 30-40 per cent more by November,” he forecasts. “Prices may fall even below the fair value. It is only by November that we may see 2005-level trading.” This perception is backed by an Edelweiss Securities survey of visitors at a four-day property exhibition held in April. Eighty-four per cent respondents felt property prices were still too high and expected a 10-30 per cent fall.